Executives
John Guszak -
Alex Hart - Chief Executive Officer, President and Director
Liz Bowman - Investor Relations
Analysts
Gary Prestopino - Barrington Research Associates, Inc.
Brett Huff - Stephens Inc.
Bradford Evans
Eric Attell
Elizabeth Lilly - Gabelli
Tier Technologies (TIER) Q2 2011 Earnings Call May 10, 2011 8:00 AM ET
Operator
Good morning, and welcome to the Tier Technologies Second Quarter Fiscal Year 2011 Earnings Conference Call. [Operator Instructions] Ms. Bowman, you may begin your conference.
Liz Bowman
Good morning. My name is Liz Bowman, Tier Technologies' Assistant Controller and Director of SEC Reporting. At this time, I would like to welcome everyone to the Tier Technologies earnings conference call for the quarter ended March 31, 2011. Today's call is scheduled for one hour. After the market closed yesterday, we issued a press release announcing Tier's financial results for the quarter ended March 31, 2011, and we filed a copy of the text of today's call, not including the Q&A, and the accompanying presentation, which includes charts that will be referenced during the call. A copy of these materials can be found in the Investor Relations section of our web site, 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 Principal Financial Officer, John Guszak, by calling him at (571) 382-1336, or by emailing him at jguszak@tier.com. A taped replay of this call will be available on the company's website from 10:00 a.m. Eastern Time today, Tuesday, May 10, 2011, until Tuesday, May 24, 2011 at 11:45 p. m. Eastern Time. Alternatively, you can hear a replay by dialing (866) 465-2111, and entering the conference ID number 7102650, starting at 10:00 a.m. Eastern Time, Tuesday, May 10, 2011.
I want to remind you that various remarks 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 Reform Act of 1995. The forward-looking statements discussed on this call represent management's current expectations about the company's future financial performance based on the information available to us today. This information may change, and our actual results may differ 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 may affect these statements, including, but not limited to: general economic conditions, which affect the company's financial results in all our markets, which we refer to as “verticals,” particularly the federal vertical, the state and local vertical, and the property tax vertical; effectiveness and performance of our systems, payment processing platforms and operational infrastructure; our ability to grow EPS revenue while controlling our costs; the potential loss of funding by clients, including due to government budget shortfalls or revisions to mandated statutes; the timing, initiation, completion, renewal, extension or early termination of client projects; our ability to realize revenues from our business development opportunities; the impact of governmental investigations or litigations; 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 our quarterly report on Form 10-Q for the period ended March 31, 2011, filed with the Securities and Exchange Commission.
In this call, references to “the quarter” or “the second quarter” refer to the quarter ended March 31, 2011. During this call, we will be referring to non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. We define the non-GAAP financial measures used in this call, and we present reconciliations of those non-GAAP financial measures to the most directly comparable GAAP measures, in the Form 8-K that we filed yesterday afternoon. That Form 8-K is available in the Investor Relations section of our website, www.tier.com, under the heading, Investor Relations.
With me on the call today are Keith Kendrick, our Senior Vice President of Strategic Marketing; John Guszak, our Controller and Interim Principal Financial Officer; and Alex Hart, our President and Chief Executive Officer. We'll begin the call with Alex.
Alex Hart
Thanks, Liz, and good morning. We're making good progress in correcting the errors of the past and implementing our new strategy. But we're only beginning to see the positive effects of the changes we're making.
Our financial results from second quarter were obviously unacceptable, but there were encouraging indications that we're focusing on the right things and turning the corner in some key market segments. Transaction growth in our key segments, especially government, higher education and municipal utilities, was particularly strong. Overall transactions grew more than 20% versus the same period last year, if you exclude the negative impact of large utility clients leaving us as a result of our poorly handled acquisition of ChoicePay a couple of years ago.
Even with the large utility segment included, transactions increased 7.9% from the same quarter last year, but top line revenue was basically flat due to lower average transaction sizes this year versus last year. I think it's useful to point out that transaction growth came in what is traditionally our lightest quarter of the year, so I'm encouraged by that aspect of our performance.
As I noted during our last quarter call, we stopped our efforts to consolidate under the ChoicePay platform and have focused our efforts on restoring the reliability that made ChoicePay successful in the first place. I'm pleased to report that the ChoicePay platform is once again performing well, and we are working hard to retain as much of the former ChoicePay customer base as we can, while determining the appropriate go-forward strategy for each of our platforms.
Our renewed focus on reliability and serving the needs of our clients and customers in municipal utility, government and higher education markets is beginning to bear fruits. Revenue, dollars processed and transactions were all higher than they were a year ago in these segments. And I expect to continue to work to both reduce the costs of serving these segments and rationalize our activities in adjacent segments will lead to financial improvement down the road.
The days of chasing the bright shiny objects are over, and we are getting much better at determining which things we should do instead of immediately beginning to figure out how to do something that might never produce any meaningful, profitable revenue. We also are taking a much more thoughtful approach to creating the technological capabilities we need to become a highly profitable company some day. It's tempting to simply decide to build a new system from scratch, but we believe that we already possess a number of the components that we'll need in our future architecture, and we're developing a detailed plan for how best to both sustain the business we have today, and grow the business in a profitable way in the months and years ahead.
While tax season did not fall in the quarter, I imagine that many of you would appreciate a first glimpse of how the season went. First, I want to remind everyone that the Federal Tax business is only one part of our Tax Payment business. But since it accounts for nearly 20% of our total business, it remains an important part of the story. The federal vertical is composed of two primary components. One, a partnership with an online tax filing service and two, our contract with the IRS, which we traditionally implement through our primary brand, Official Payments.
This year, we also used the ChoicePay name to establish a fighter brand designed to capture a more cost sensitive segment of the market without eroding the value of our Official Payments brand. Both brands faced new competitive pressures this tax season, but we were pleased with their performance overall. Our partnership with the online tax filing service, which had initially been exclusive to us, is now in its second year of reduced volume as another payment services company has taken the lead position.
Our contract with the IRS is in the second year, in which there are 3 providers of electronic payment services instead of 2. And we are listed in position 3 this year on the IRS website.
Our transactions processed through the IRS contract for this tax season, which started January 1, 2011, increased 24% through the end of April as compared with the same period in 2010. The 24% increase in transactions was offset by a decrease in average payment size, limiting the increase in total payment volume to 9% to date, but encouraging nonetheless. We believe that our enhanced marketing efforts were a big part of the increase, and that we gained share in this vertical. But we also suspect that we benefited from the ongoing adoption of electronic bill payment overall.
Now I would like to turn to the financial performance for this quarter before I provide an update on our progress against the goals of the strategic plan. First, would like to address the P&L statement. Revenues from continuing operations for the quarter were $30.3 million, down 1.3% from the same quarter last year. In our core Electronic Payments Solutions business or EPS, we processed over $1.8 billion worth of payments, which represents a 5.9% increase versus the same quarter last year. This increase was driven by a 7.9% increase in transaction volume, as I noted earlier.
With the growth in transactions, EPS revenues for the quarter were $29.9 million, down $81,000 over the same quarter last year. We experienced revenue and transaction growth in our other primary verticals led by our state and local vertical and in our higher education vertical with revenue growth of 13.6% and 11.1%, respectively.
During the quarter, we experienced lower revenues in our utility, property tax and federal verticals. The loss of some large for-profit utilities and a California property tax client caused the lower revenues in those verticals, while lower average payment size was the primary cause in the federal vertical. Chart 9 provides a summary of net revenue for our Electronic Payment Solutions business.
Direct costs for continuing operations were $23.3 million, up 3.5% compared to the same quarter last year. For the quarter, EPS direct costs were also $23.3 million, up 4.7% from the same quarter last year. It appears that a significant portion of the increase was the result of an increase in interchange rates from one of our credit card partners, combined with a decrease in the number of lower cost ACH [Automated Clearing House] payments due to the loss of several large utility clients during the last year. Our other direct costs decreased 13.3% from the prior year quarter, further indicating how important it is to get a better handle on our interchange costs, processing fees and bank fees.
General and administrative expenses for continuing operations were $4.9 million for the quarter, down 21.1% or $1.3 million compared with the same quarter last year. The decrease in G&A was attributable primarily to the reversal of stock-based compensation expense of $1.5 million because the conditions specified in the grant were not achieved. In addition, our legal fees, rent and bad debt expense decreased when compared to the same period last year.
During the quarter, we recorded severance expense of $300,000 for the departure of our Chief Financial Officer. Payroll cost increased for the quarter as compared to the prior year's quarter as key developers were assigned to projects that we do not capitalize.
Selling and marketing expenses were $1.8 million for the quarter, up 26.7% from the prior year's quarter, primarily due to expanded advertising campaigns that support all of our major verticals, not just the Federal Tax business. We also spent a bit more on partner-related activities in an effort accelerate the launch of new capabilities that we believe will generate new revenue downstream.
For the quarter, Tier reported a net loss from continuing operations of $1.4 million as compared with a loss of $800,000 from continuing operations in the prior year quarter. In our discontinued operations, we received an earn-out payment related to the sale of our former Government Business Process Outsourcing business of $500,000. This payment marks the last transaction we anticipate regarding the GBPO business. Our consolidated net loss per fully diluted share in the quarter was $0.06 compared to a loss of $0.03 per fully diluted share in the same quarter last year.
Turning to the balance sheet, our $43 million in cash and cash equivalents at March 31, 2011 included funds that had settled to us that we had not yet distributed to clients due to the timing of bank transactions, equal to $12.8 million and accrued discount fees of $4.9 million. These items reduced our cash available for company use, and were offset by $10.8 million of receivables from credit card companies and banks, which we expected to receive within one or two days at the end of the quarter on March 31, 2011. The net result was cash and cash equivalents available to Tier at March 31, 2011, of $36.1 million. Please see Chart 14 for more information. Please remember also that we have $6.0 million of restricted cash that is currently acquired by one of our ACH processing partners.
The quarter ending balance sheet also reflects the purchase of $10 million worth of our common stock pursuant to our tender offer in January this year details regarding the tender offer can be found in Note 13, Shareholders' Equity. The company's headcount on March 31, 2011, was 223 employees and 20 contractors. As I noted during our last call, we're specifically focused on four strategic objectives: number one, making reliability a reality; number two, going where the payments are; number three, funding the future; and lastly, working together.
Making reliability a reality means becoming the kind of payment partner our clients and their customers demand and deserve. There is no substitute for delivering on a promise, and we simply failed to do that for a couple of years. We are now refocused on both restoring the ChoicePay platform to reliability, and enhancing the reliability and performance of all 3 of our customer-facing platforms.
We recently upgraded the core database server for Web transaction processing on our OPAY platform, increased investment in virtualization technologies to create our own private cloud computing environment, and modernized our server and storage environment to support our higher education clients on the E-Post platform. These efforts are a good start, and will continue as we work to improve across the board.
Going where the payments are reflects our desire to focus our energy and resources on the opportunities that have the highest potential to produce meaningful volumes and higher margins. Part of our challenge is a legacy of chasing every interesting opportunity without the discipline that comes from truly understanding our business model and the drivers of profitable revenue growth. A new CFO, along with the recently hired Vice President of Business Analytics and Pricing, will have a big impact on our ability to chase the right opportunities.
One opportunity that I believe will produce meaningful financial returns is a major relationship with MoneyGram International that we are announcing today. The MoneyGram partnership combines our biller network, excuse me, out biller direct network with their domestic walk-up network for cash payments. This arrangement allows consumers to walk into any Wal-Mart, CVS or Walgreens, and pay participating billers in our network with cash. This new channel vastly expands our consumer reach to more than 60 million consumers who are under-banked, unbanked or who simply prefer to pay their bills in cash as opposed to over the phone or via the Internet. While it will take some time to certify all of our billers and some may opt out, we believe that the unbanked and under-banked segment will value the ability to pay more of their bills in the places they frequent the most.
Funding the future is critically important. The focus on payments and the resulting sell-off of non-core assets position the company well for success down the road, but we need to become cash generating as quickly as we can be without stunting our growth. We believe that there are a lot of opportunities to improve our efficiency.
For example, we have far more processing relationships and banking relationships than we should have, and the lack of volume concentration alone is a big opportunity to reduce costs. We have, as I mentioned previously, been too willing to chase one-off deals and new partnerships with little understanding of the financial implications of doing so. We are reviewing all of our partnerships, and determining which handful of partners can deliver the best value for both Tier and our clients and customers.
As far as cash is concerned, most of you know that we completed a Dutch Auction tender offer during the quarter, purchasing $10 million of our common stock at a price of $6.10 per share. We have now returned $22 million to shareholders during the past 2 years and will continue to assess the attractiveness of acquiring additional shares on a regular basis.
Working together on a common set of objectives, with trust in one another and an appreciation for each person's role in building a successful business is one of the most challenging and rewarding aspects of the job. We are blessed with a number of very talented and hard-working associates that have been with the company for some time, and we've continued to supplement those folks with talented newcomers that have, in most cases, already been where we're headed, and they can help us get there faster.
I'm also pleased to welcome 2 new board members to Tier. Katherine Schipper and Jim Hale joined as of the annual meeting date on April 7, and will be participating in their first Tier board meetings this week. I look forward to their fresh perspectives and wise counsel.
Before I open it up for questions, let me note that in keeping with prior practice, we are not giving revenue guidance at this time. We remain comfortable with our expectations for 21 million transactions for fiscal year 2011, as noted on Slide 15. But we believe that average transaction sizes will continue to decline somewhat, and that delivering a relatively flat year will be more challenging than we anticipated.
We are working hard to energize our sales force and reverse the interchange and discount fee trends that had such a negative impact on this quarter. But we are concerned about our ability to have a relatively cash neutral year if we do not see improvement on both fronts. We believe that we are on the right path, and that we will soon have the right team in position to have a significantly improved 2012, but there's obviously much work ahead.
Thank you for your time and attention this morning.
Let's open the call to Q&A. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Brett Huff of Stephens.
Brett Huff - Stephens Inc.
Just have a couple of quick questions. When you look at the size of the impact of the interchange and the discount fees that went against you this quarter, can you give us a sense of the kind of impact that had on revenue or gross revenue and/or profitability?
Alex Hart
I don't know if it had much an effect on revenue, per se, but it clearly had an effect on profitability. There was a change introduced in our pricing in the fall that we, frankly, didn't recognize for a while. One of the things we're hoping to change with the change in leadership in the finance organization. We also are going to spending time with our credit card partners to try to get a, better pricing overall, but b, more credit for the things that we're already doing. One of our failures is that we have not always been very good about auditing the bills we're getting, and making sure that we're being charged the right amount for the right type of transaction. There is certain transactions of the credit companies want to promote, others that they're trying to make a profit on or a bigger profit on, and we're not always sure that we're getting the right deal. And so we're spending a lot of time digging through that data, to try to improve that. We know we're not doing very well there, and we can do a lot better.
Brett Huff - Stephens Inc.
And then congratulations on the MoneyGram deal. Can you give us a little more detail on that in terms of how you all are thinking about the size and the impact and specifically on the P&L?
Alex Hart
Still early days. We have our first transactions flowing through the system. We haven't done any marketing yet, obviously we just announced it today. So we're not sure how quickly it will become meaningful, but we do think that there's a large population out there that we need to reach in a different way. And we're very excited about them and MoneyGram as well, is very excited about this.
Brett Huff - Stephens Inc.
Okay. And then last question, and I'll let somebody else ask, but can you give us a sense, I know you had a sort of $1.5 million benefit of reversal, some of the stock comp stuff. But when you look at G&A, and sales and marketing going forward, it seems that you're trying to balance, making some fixes to your systems, and investing in marketing, but at the same time, try to deliver profitability. Can you give us a sense of what the run rates of those might be over the next few quarters roughly?
Alex Hart
I think they're fairly stable. There will undoubtedly be some shifts over time. But the real -- the big question is how much more we need to spend on the technology platform, and we're going through that in great detail this week with the board to get a better sense for whether or not they think we're heading in the right direction. I think that we are, and Sandip has been CTO since March, has done an excellent job of pulling that together. But that, that really is the primary variable, and we don't know the answer to that just yet.
Brett Huff - Stephens Inc.
Is that a question of going ahead with sort of modifying current technology platforms, and optimizing those versus making more wholesale change? Are we still at that fork in the road or are we -- have we made that decision and gone down one or the other?
Alex Hart
Well, I think there's no question that we need to make certain investments in our infrastructure to simply maintain the franchise we have today. We've spent two years trying to build a consolidated platform that was an abject failure in my mind, although there are pieces of it that we use today. For example, the back-end for the IRS business runs on ChoicePay technology or enhanced technology that started out as ChoicePay technology. And it performed flawlessly during tax season. So there are pieces that we're very pleased with. But all in all, we spent two years trying to build something that we did not deliver on and at the same time, let the other two platforms where the bulk of our revenue and customers reside sort of die on the vine. So we spent a lot of time since I got here re-energizing those platforms, making some investments in core technology that we needed to make to ensure their continued sustainability and reliability. We also have been building new products, and we're rolling out new products on those platforms for the first time in three years at least. So we're feeling very good about where we're headed there. But the larger issue, as you pointed out, is what will it take to build a consolidated platform and how do you define that. We believe that over time, the three platforms we have today will likely become much more like front ends for a consolidated payment engine, a consolidated reporting engine, consolidated customer service component that we do have to build or at least modify significantly to become the kind of platform that will deliver the operational leverage we think we need.
Brett Huff - Stephens Inc.
Okay, that's very good.
Operator
Eric Attell of Resolve Capital.
Eric Attell
In the 10-Q, actually the previous 10-Q, I suggested that the Durbin Amendment impacts, lower interexchange fees would have a negative impact on your revenue. And then in the previous conference call, in the transcript, it suggests that the carve-out for the Durbin Amendment, if didn't go through, it would have -- it would not have any benefit for the company. I'm just trying to understand exactly how the Durbin Amendment may or may not affect your top and your cost of goods sold line. Is it positive or negative? How would that work its way through?
Alex Hart
Yes, I think it's -- there are 2 aspects. So on the top line; I think it would have a short-term negative effect, although we do believe that there could be increased adoption that would counteract that and end up making that much more positive. On the net line, we clearly would benefit at least in the short run. Our costs would go down significantly in debit, which is about 1/2 of our payment volume. And so there would be an opportunity to do quite well. We also anticipate that our larger clients and partners, in particular, would expect to share in those savings, so we don't think that the windfall would last forever, but we do think that it would have a positive effect on adoption and on margins for some period of time.
Eric Attell
So would that suggest that the overall would be a positive if the Durbin Amendment was passed? Is that over time? Is that how I should read that?
Alex Hart
I believe so, yes.
Operator
Gary Prestopino of Barrington Research.
Gary Prestopino - Barrington Research Associates, Inc.
ALex, did you give the absolute number of transactions in EPS this quarter?
Alex Hart
Did we give the absolute number?
John Guszak
[indiscernible] but I can.
Gary Prestopino - Barrington Research Associates, Inc.
Up 7.9%, but do you have that number handy?
John Guszak
Just give me one second.
Alex Hart
Yes, well, John is looking that up for you, Gary.
Gary Prestopino - Barrington Research Associates, Inc.
All right. And then, I guess, while someone's looking that up, I guess the question, couple of questions I would have is you talked about interchange and the impact with various processes you're working with. Is it realistic in what you do that you can consolidate just with one acquirer to try and get the best possible deal on the fees that are being charged for your credit card transactions? Or is that not possible?
Alex Hart
I'm not sure we can consolidate on to just one. But our goal is to get to 2 or 3. The first step, frankly, is more of a business deal than anything else. We have, in a couple of cases, more than one relationship with a processor through our different platforms, and we're not getting any credit for the value of that business overall. But clearly, we've been far too, I think, accommodating of some of our clients' wishes to do business with a particular bank or a particular processor, without nearly as much understanding of how that affected our profitability. And so we can't change some of those things overnight because in some cases, there are 3-party deals between us, the client and the processor or bank. But the goal is to ultimately have a direct relationship with a client, and then a relationship with one or more processors that the client is relatively separate from.
Gary Prestopino - Barrington Research Associates, Inc.
Okay. And then in terms of -- you talked about some of your growth verticals, state and local, education, and I would assume the utility, when you factor out the large utilities, the small municipal ones, was that -- was the positive -- was there positive growth in that quarter, in this quarter as well? And [indiscernible].
Alex Hart
There is positive growth there. We're -- it's offset by, obviously, some significant losses of those large utility clients that we frankly just screwed up over the last couple of years, and we're seeing those -- those -- the larger impact of those losses this year.
Gary Prestopino - Barrington Research Associates, Inc.
Well, I mean apples to apples, if you're look -- if you factor that out, was there some growth in the top line in that vertical then?
Alex Hart
Yes.
John Guszak
Yes, there was.
Gary Prestopino - Barrington Research Associates, Inc.
Okay. I guess, maybe just help us out in terms of when you look at those three segments, which is part of your growth, the big part of your growth strategy, could you maybe give us some benchmarks as to what was internal growth, and what was growth that was added through new clients, just to get an idea to see how you're still tracking in terms of growing that business overall?
Alex Hart
Well, internal growth has been the majority of it. One of the reasons that we added someone to the sales leadership team is that I'm just not happy with the degree to which we are adding new capability. We've done a very good job of maintaining the relationships we have, of expanding the relationships we have, of adding new payment types to our existing relationships. A significant percentage of our revenue comes from people we've had for quite some time as customers. We have not done a good enough job of hunting for new clients. And so Mark Lavin, who joined us last week, is very much focused on figuring out how to best energize the sales force to become hunters, not just farmers. And that's not to suggest that we're not doing some hunting today. But we're not doing as much as we think the business should be doing.
Gary Prestopino - Barrington Research Associates, Inc.
And that would include properly incentivizing these salespeople for business?
Alex Hart
Absolutely.
Gary Prestopino - Barrington Research Associates, Inc.
All right. And then in terms of, again, I don't know if you could answer this question, but you did $1.8 billion of payments, what was the relative shift that you saw year-over-year between ACH credit and debit? Did it swing more towards credit as the economy got stronger, or basically stay the same year-over-year?
Alex Hart
It has definitely swung in the direction of credit card payments. In some cases, people are paying in installments for certain things instead of paying at once. They're using credit more than their checking accounts. And of course, in the large utility segment, it was largely driven by ACH payments to begin with. They were 12x a year; smaller payments tend to be things that were paid by ACH.
Gary Prestopino - Barrington Research Associates, Inc.
And then lastly, can you give us a breakdown of what percentage is which, or do you make that public?
Alex Hart
We have not shared that in the past, but we'll certainly consider doing that as we provide better benchmarks. We understand you need more information to go on, and we're working to figure out which aspects of that we should share.
John Guszak
To answer your question about the number of transactions that we processed, we processed approximately 5,180,000 transactions in the second quarter. And last year, second quarter, we processed approximately 4,801,000 transactions.
Operator
[Operator Instructions] Our next question comes from Brad Evans of Heartland.
Bradford Evans
Alex, just to clarify the operating expenses below the direct cost of revenue line, if we would add back that $1.4 million reversal from the stock comp perspective, is that $8.1 million run rate? Is that a good number to be using going forward, or are there some cost savings that are still not reflected in that aggregate total?
Alex Hart
Obviously, severance inflated that number a bit, but we also think there's some cost savings we can achieve in that number.
Bradford Evans
Okay, can you just -- over the last several quarters, you've -- the cash operating expenses have run and I realize there's seasonality in that number, but it's run between, it looks like kind of $7.5 million a quarter looks like a good average, is that where you hope to get back to or?
Alex Hart
Yes, that's a good average.
Bradford Evans
Okay. I realize you're still looking for a new CFO but beyond that, is the team largely in place at this point?
Alex Hart
I believe so. And frankly, we've made great progress on the CFO search, and hope to wrap that up relatively quickly. We were very impressed with the quality of the candidates we saw and liked a number of them and feel very good about where we are.
Bradford Evans
Okay. Just on the MoneyGram partnership, could you just, I realize it's early days but what -- as you look out over that relationship, what would be a barometer of success or failure for that in terms of, from a revenue perspective or transaction perspective, what could that mean for you?
Alex Hart
We haven't really sized it beyond just looking at the sort of the macro numbers, which we aren't at liberty to share. But clearly, the reach of Wal-Mart, of CVS, of Walgreens is significant. We think that the unbanked population and under-banked population is large and growing. It's about 60 million consumers, we think today. And those folks largely want to transact in cash. And certainly, to pay a certain number of their bills using cash at a Walgreens, at a Wal-Mart, at a CVS is a very convenient thing for them. It fits their lifestyle, it fits their desires; it electronifies a transaction that currently is much more difficult to handle. So we think that's going to grow significantly over time, and we're very excited about partnering with someone that really knows that space well.
Bradford Evans
Does that relationship -- is that exclusive in the sense that it would prohibit you from going to other providers of that service such as Western Union?
Alex Hart
We would have a tough time going to Western Union. But there are other people in related spaces that we're free to work with.
Bradford Evans
Such as payday lenders or...
Alex Hart
Potentially. We haven't really explored that particular aspect of it. We think this covers a big gap in our distribution strategy. And we're putting a lot of wood behind this arrow, so we haven't really looked beyond that today, but we certainly will down the road.
Bradford Evans
Last question from me. Do you think you'll be cash flow positive for 2011 fiscal year?
Alex Hart
That certainly is the goal. We're working very hard for it. The fact that our interchange is up while payment volume is not keeping pace, is troubling, and so we're doing a lot of work in that category beginning Thursday. So we have to do work there, and we clearly need to re-energize our sales force, and bring in more sources of new revenue to make sure we're on the right path to do that.
Operator
Our next question comes from Beth Lilly of Gabelli.
Elizabeth Lilly - Gabelli
I have 2 questions. Can you clarify just the platforms and the consolidation of the platforms, and what your thinking is in terms of -- do you anticipate having to spend multiple millions of dollars on the new platform? I just want to be clear on your strategy.
Alex Hart
Well, the strategy is being formulated as we speak. We are going through our recommendations with the board tomorrow. So I'm reluctant to share too much of that. But as you know, today, we have 3 different platforms that have largely served different populations. The OPAY platform in San Ramon is primarily a government platform, although it has higher education and utility clients as well. The ChoicePay platform in Tulsa is largely utilities although it has some others. And then the E-Post platform in Auburn is largely higher education, but has government and utility clients as well. Each of those has a future. Each of those is important to us. Each of those frankly is running much better today than it was 6 months ago. And we have new products that we've introduced on both the OPAY and E-Post platforms for government and higher education clients that we had not rolled out, again in probably 3 years, and in some cases, people have been waiting 2 or 3 years for some of those products. And we have a very, I think, robust product pipeline down the road. How far we can get without consolidating is something we're trying to figure out. It's clearly expensive to operate 3 different platforms. We have 5 data centers today. At a minimum, we need to reduce the number of data centers we have; get down to 2 data centers, and become a much more efficient company in that respect. But the 3 platforms will exist for some time. We're trying to figure out how we can build around it or around them as opposed to simply replacing them. We'd rather not start from scratch and build a brand new house to move into. We think that there are other ways to get there that are less expensive, less risky and less disruptive, maybe most importantly to our customers.
Elizabeth Lilly - Gabelli
So basically, you're going to make the recommendation to the board, then you'll talk about it publicly? What you're going to do?
Alex Hart
We will certainly talk about it at some level, yes, we're not sure how much detail we'll share or how quickly. But in part, because we don't want to give too much fodder to competitors out there.
Elizabeth Lilly - Gabelli
No, what I'm trying to understand, Alex, is do you anticipate having to spend $10 million to $15 million on the platform, or is it going to be a smaller amount? I'm just trying to get clarification on the level of expenditure.
Alex Hart
Again, Beth, it depends on which path we choose, and there are multiple components to it. So I think at the low end, you could spend a couple of million dollars just to limp along. You could also spend $20 million and get everything you ever dreamed of. The answer will be somewhere in the middle, and we're trying to keep it as close to the lower end as possible.
Elizabeth Lilly - Gabelli
Okay. My second question has to do with a filing by, I think, your largest shareholder made a week or so ago. Just in terms of -- Discovery has made -- they've been on the board and off the board, and had put forth directors and taken off directors. And I want you to just talk about their statements regarding overtures that have been made to the company to acquire the company. And also, just where the board is at in terms of remaining independent as opposed to selling the company. And if you could talk about the filing, that would be really helpful.
Alex Hart
Sure. Well, I've made no secret about the fact that I think we have a responsibility as the guardians of a public company to take a look at every decision within the build, buy or in some cases, sell construct. And so we certainly will spend some time as a board talking about the letter, addressing their concerns, and I'm not aware of the parties they refer to. My suspicion is that, at least, one or more parties have come to them as the largest shareholder and said, "Hey, we're interested in what's going on there. " But we, to my knowledge, we've not had any particular offer to buy the company. We're certainly very open to that, and we have a fiduciary duty to take any serious offer very seriously, and to take a hard look at it. Now whether or not it makes sense to begin a process, is something the board will have to decide. But I, as a CEO, I'm always open to having conversations with others in the industry, and I think that M&A is certainly going to continue in the space. I think it's reasonable to expect that we will participate in it at some point, whether today is the right points or not, I think it's to be determined. But there's no question that we have what I think are some fairly valuable assets, and an attractive position in the market. We clearly are not a well-run company today, and I think that there's a lot of opportunity available to our shareholders to see the fruits of our labors in the shorter-term period than versus the long-term period. But whether or not we should sell and let someone else take advantage of those opportunities right now, I think is something we'll have to debate.
Elizabeth Lilly - Gabelli
So you're not aware of any offers that have been made for the company? Is that what you're saying?
Alex Hart
I am not. Correct. Correct. Now that is not to say that someone hasn't an approached them and said, "Hey, we'd like to negotiate a sweetheart deal to take you out and buy the company. " I think that if we had a lot of interest, we'd have to have an open process, so that we get the best possible result for shareholders, and perhaps there are people that would like to not participate in an open bidding process. But I'm not aware of any particular offers, no.
Elizabeth Lilly - Gabelli
Okay. All right. Those are all my questions.
Operator
Eric Attell, Resolve Capital.
Eric Attell
Hey, I'd be remiss if I didn't try to understand the Durbin Amendment a little bit further. In the previous 10-Q, it suggested that there would be a severe negative impact if the Durbin Amendment was actually passed. But that sounds like it's changed subsequent, is there something that changed in the amendment itself that I'm not aware of?
Alex Hart
Yes, I'm not sure where you're getting the sense it would be a negative event. I think it would have a negative impact on the debit market. My belief is that the debit cards, as we see them today, would fundamentally go away, over time. And banks have already worked very hard to modify things like stored value cards to take the place of debit cards if the government sees fit to severely limit the amount of money that the issuers can make on debit cards, then they will stop issuing them. And so but that's negative in the sense that if you care about having a debit card, I think they will largely go away except for those that are below the $10 billion threshold that are allowed to charge a much higher fee for those transactions. But overall, I think it creates a short-term opportunity to make a higher margin. Longer term, I hope it encourages more people to pay for things electronically. But I do think that there would be a shift over time to things like stored value. And when you think about it, a debit card is essentially a stored value card if you consider the cash in your checking account that in many cases, earns very little interest. It's fundamentally a stored value account today. So it's not a huge difference, and I think banks will jump all over that as opposed to being limited so severely to $0.06 or $0.12 per transaction.
Eric Attell
So but my understanding was that the debit card was actually a large part of your revenue.
Alex Hart
It is. And it could shift to stored value cards or other things.
Eric Attell
Okay, so there would be a negative impact. You're suggesting that there'd be some offsets from other revenue streams as consumers and banks stop offering, consumers start switching over.
Alex Hart
Yes, we don't know what the pricing would end being on stored value versus debit cards today. But generally, whenever a change is mandated, the banks find a way to make a living somewhere else.
Eric Attell
I understand. Okay.
Operator
Brett Huff of Stephens.
Brett Huff - Stephens Inc.
Alex, just one follow up, I didn't ask the question I wanted to get some color on the Property Tax segment that you guys have such a good franchise in. Can you give us a sense of -- are we turning the corner in terms -- just give us a sense of the market on that, and then relative to the market, how are you guys doing? Do you continue to take share? What's the average ticket? Just give us a sense of those things.
Alex Hart
We continue to take share. We continue to see growth in transactions. The average transaction size is down, although it is down at a declining rate. So we think it's at or near the bottom in terms of that decline. But clearly, the real estate market has not recovered significantly. In fact, some think we're in the throes of a double-dip in certain places, and that we won't come out of it until 2012. If that's the case then, perhaps, we'd see a further erosion of average payment size. But for the most part, that has really decelerated quite a bit, and we do think that we're continuing to gain share there. So as the economy improves, we should benefit significantly from that.
Brett Huff - Stephens Inc.
Okay, that's very good.
Operator
Our last question comes from Brad Evans of Heartland.
Bradford Evans
Yes, so a couple of follow-ups, if you don't mind. So if you were to reach your 21 million transactions for the full year, that would imply about a 15% growth rate in the second half, I guess. But from what you've seen so far in the third quarter, do you feel comfortable you can achieve that?
Alex Hart
We do.
Bradford Evans
Okay. Can you just give us your current view in terms of degradation in the average dollar per transaction? What we should be expecting for the full year?
Alex Hart
As I said, I think it's going to continue to drop a bit, but it's certainly slowing down, so I wouldn't expect it to drop more than another 10% or so.
Bradford Evans
Okay. And just, Alex, I appreciate the burden, not the burden, but I guess about both the obligation and the opportunity that you bear, stepping into the situation. Just -- if indeed strategic alternatives are at the right route for shareholders in the short term, if that's the conclusion of the board and management, I just -- I think everybody on the call here can see why the company is undervalued. We're just -- we're really lacking a catalyst, so I would appreciate and press upon you to, if you do, if the board does decide that going down that path of pursuing alternatives is not the right one, we need to hear why -- which has an exciting future because I -- in the numbers, the transaction growth, obviously, is very exciting. We obviously see the average dollar per transaction muting that and profitability has been elusive. So we do need to have -- shareholders need something that -- to chew on here to give them hope that there are brighter days ahead.
Alex Hart
No question, Brandon. And one of my goals for the new CFO is to come up with a group of metrics that we can share with you that will indicate progress, and indicate that we, in fact, deserve the opportunity to continue to run this company. So we've not done a very good job of that in the past, not only externally but, frankly, internally. We do not have a good enough sense for where we make money, which verticals, which customers, which transaction types are the most profitable. We have a sort of anecdotal sense too often, but we don't have the hard, hard numbers that I am accustomed to. As I mentioned before, we hired a guy to run marketing analytics and pricing for us that, as a Ph. D. -level clock guy who will really dig into the numbers, and give us a much better sense for not only where we're making progress, but give us an early indication of progress. And we need to figure out how best to share that with you, so that you share the enthusiasm that we have for the business.
Bradford Evans
Okay. Well, we'll look forward to some news in the future.
Operator
At this time, we have no further questions.
Liz Bowman
Thank you, operator. Thank you, Alex. As I mentioned at the beginning of this call, a copy of the text of this call and accompanying charts are posted in the Investor Relations section of our website at 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 Controller and Interim Principle Financial Officer, John Guszak, at (571) 382-1336 or jguszak@tier.com. Thank you. This concludes our second quarter fiscal year 2011 earnings call for Tier Technologies.
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