Apr 27, 2000
April 27, 2000
Atlanta, GA
Terrie O'Hanlon:
Hi, this is Terrie O'Hanlon, and I want to thank you all for joining us. On the call are: CheckFree's Chairman and CEO Pete Kight, and Bank of America's bankofamerica.com Executive, Jim Dixon. Also available for Q&A at the end of the call are CheckFree's President and COO, Pete Sinisgalli; and CheckFree's CFO Allen Shulman.
Before we get started, I want to give you our Safe Harbor notification:
Certain of the Company's statements in this conference call will not be purely historical, and as such are forward-looking statements under the Federal Securities laws. These include statements regarding management's intentions, plans, beliefs, expectations or projections of the future.
Forward-looking statements involve risks and uncertainties, including, without limitation, the various risks inherent in the Company's business, and other risks and uncertainties detailed from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. These SEC filings include Form 10-K for the year ended June 30, 1999, filed September 24, 1999, Form 10-Q for the quarter ended December 31, 1999, filed February 10, 2000, and Form S-3 filed January 14, 2000.
One or more of these factors have affected, and could in the future affect, the Company's business and financial results in future periods, and could cause actual results to differ materially from plans and projections. There can be no assurance that the forward-looking statements made today will prove to be accurate, and issuance of such forward-looking statements should not be regarded as a representation by the Company, or any other person, that the objectives and plans of the Company will be achieved. All forward-looking statements made during this conference call are based on information presently available to management, and the Company assumes no obligation to update any forward-looking statements.
Now I'd like to turn the call over to Pete Kight, CheckFree's chairman and CEO.
Pete Kight:
Good morning, and thanks for joining us on such short notice. Obviously the press release we issued early this morning is very good news -- not just for CheckFree and Bank of America, but for the overall acceleration of Internet payments, including electronic billing and payment.
We would love to have signed this agreement in time to share this news on yesterday's call. In fact, we worked like hell to make that happen. But I'm sure those of you who have been through the negotiating process on a far-reaching agreement like this realize it's tough to have everything fall into place at the exact moment you want it to. But we didn't get everything in order until yesterday afternoon, so we appreciate your forbearance in joining us again in back-to-back conference calls.
I'll start off this morning by giving you CheckFree's perspective on why we consider this agreement the most strategic one we've ever signed. Then I'll turn the call over to Jim Dixon, who will give you some insight from Bank of America's perspective. Then we'll spend about 20 minutes answering questions.
We expect this agreement to be nothing short of catalytic for Internet payments, including electronic billing and payment. Industry research continues to reveal that a trusted financial institution brand goes a long way toward making consumers feel secure conducting financial transactions on the 'Net. Bank of America is one of the best and largest of those brands.
The strategic agreement we signed yesterday will make integrated electronic billing and payment available to the one out of every three households that use Bank of America services today.
As you may already know, Bank of America is not only America's largest bank, it is the largest provider of online financial services in the country, with more than 2.1 million online banking customers. More than 700,000 of these are enrolled in Bank of America's online payment services. As many of you already know, CheckFree handles part of the transaction processing for about 400,000 of these Bank of America customers today. Through this agreement, we will begin processing for the remaining 300,000, and will work with Bank of America to extend integrated electronic billing and payment services to its entire customer base.
While this by itself is great news, our agreement with Bank of America extends beyond the services each of us offer today. We are working together to further accelerate the potential for payments on the 'Net by extending our services to create a platform that enables consumers to "pay everyone for everything electronically," -- under their trusted bank brand.
We will share more detail on these services in the near future. What I can say today is that these services will be open to all financial institutions to use, and will benefit everyone who conducts financial transactions on the 'Net, consumers and businesses alike. We plan to enhance the sheer convenience of paying for things on 'Net. We'll do that by enabling consumers to use their existing trusted and secure bank accounts to pay bills, pay each other, and purchase things from anywhere on the 'Net. This eliminates the need to share credit card information at multiple Internet sites, avoids requiring consumers to open up multiple payment accounts, and simplifies the process for both consumers and the businesses they buy from.
We are very excited about the potential these services have to change the Internet payments landscape. We have already disclosed that the United States Postal Service will be participating, and we anticipate a number of other large market leaders -- in both financial services and Internet services -- will participate as well.
Now I'd like to cover some of the specific terms of our strategic agreement with Bank of America. These details should help you fully understand how this agreement will accelerate electronic billing and payment, and how it will help ensure CheckFree's continued market leadership:
CheckFree now has a 10-year contract to provide electronic billing and payment services to Bank of America. This contract includes a $50 million annual minimum revenue commitment to CheckFree from Bank of America. As expectations for subscriber adoption through Bank of America are met, revenue will materially exceed this commitment.
Bank of America will roll out integrated electronic billing and payment nationwide. Bank of America retail customers will receive access to all bills distributed through CheckFree's distribution network, and Bank of America will aggressively distribute its internal bills -- such as bills for credit cards, consumer loans and mortgages - through CheckFree's distribution network. Bank of America and CheckFree also will work collaboratively with Bank of America corporate customers to accelerate getting bills on the 'Net.
CheckFree and Bank of America will collaborate on a "next generation" payments platform that will enable consumers and businesses to "pay everyone for everything electronically" - all from the same trusted, secure bank account. This service will combine electronic billing and payment, person-to-person payments and retail payments on one system with one user interface. We expect some of these services to launch this calendar year.
Bank of America receives a stock grant of 10 million shares of Common Stock. If you do not take into account shares tied to pending acquisitions, this equates to a 16% ownership stake in CheckFree.
In addition, Bank of America receives 10 million incentive-based warrants for CheckFree stock. In order for Bank of America to earn all of these warrants, more than 10 million Bank of America customers must be using CheckFree services, and Bank of America must be delivering more than 10 million bills per month. Bank of America will earn these warrants incrementally as subscribers and bills are added, based on stepped benchmarks.
The breakdown works like this: eight million of the warrants are tied to subscriber growth through Bank of America. The bank will earn two million warrants for each 2.5 million subscribers, up to 10 million subscribers. The remaining two million warrants are tied to electronic delivery of Bank of America bills. One million warrants will be earned for each 5 million monthly bills delivered, up to 10 million bills per month.
CheckFree will begin processing transactions for subscribers who are today using Bank of America's California platform. We expect 300,000 incremental Bank of America consumers to be added to CheckFree's subscriber base initially. Both these subscribers and the other 400,000 subscribers for which CheckFree processes transactions today will be migrated to CheckFree's Genesis platform within 12 to18 months.
CheckFree will perform full electronic billing and payments services -- including Level One and Level Two customer care -- for all Bank of America subscribers. For the approximately 300,000 existing subscribers on Bank of America's California platform, this is net new business to CheckFree. For the approximately 400,000 existing subscribers already processed through CheckFree, this represents a significant expansion in the breadth of services we provide, with an accompanying increase in revenue.
The agreement contains pricing consistent with rates given to other Consumer Service providers for similar services and volumes. Discounts that are designed to share economies of scale with Bank of America as the bank meets subscriber goals are built into the pricing structure as well. The contract also provides incentives for Bank of America to bundle electronic billing and payment with other services it offers to its high-value customers.
CheckFree will receive revenue equivalent to a pass-through of retail pricing for electronic billing and payment services. Discounts are set to share economies of scale with Bank of America upon meeting the bank's subscriber goals.
Finally, an important element in this agreement is our joint commitment to create a $45 million marketing fund to promote biller and consumer adoption of electronic billing and payment services. Specific objectives include activating electronic billing and payment among Bank of America's 2.1 million online users, and raising awareness among the bank's non-online customer base. Bank of America and CheckFree have committed to spend the first $25 million of this fund within twelve months of activating full electronic billing and payment for Bank of America's customer base. You should expect to start seeing some of these promotional activities in the next six to 12 months.
Clearly this agreement holds tremendous benefit for CheckFree, Bank of America, consumers, billers and businesses who sell things on the 'Net. By accommodating not only electronic billing and payment services, but the opportunity to accelerate all kinds of payments on the 'Net, this agreement takes on a catalytic element beyond any other agreement we've ever done before.
Now I'd like to turn the call over to Jim Dixon. Jim?
Jim Dixon:
Thanks, Pete. As Pete mentioned, we are very excited about our announcement this morning with CheckFree.
As the largest provider of online banking services in the country, Bank of America currently serves more than 2 million online customers-clearly a recognized leader in the Internet space. With that leadership, however, comes responsibility- to the industry and to our customers.
For the industry, today's announcement marks a significant milestone toward overcoming the many obstacles that exist to wide-spread adoption of electronic bill payment.
For our customers, the Bank of America/CheckFree agreement gives them what they've told us they want - the ability to pay their monthly bills online-from their home phone, cable and cell phone bills to their monthly Bank of America loans, credit card and mortgage bills.
To give you some background, Bank of America currently has more than 700,000 customers using our bill payment services on a monthly basis. These customers process more than $800 million worth of transactions through the bankofamerica.com online bill payment service.
The Bank of America/CheckFree partnership will extend these electronic bill payment services at an accelerated pace to our more than 2 million online customers-creating true value and convenience for them. Eventually, our entire customer base of 30 million banking households in America will benefit from today's agreement.
In addition to the added value and convenience of electronic bill payment services, we are excited to announce that the two companies will begin developing a next generation payments platform for banks. This new platform will empower consumers to use the Bank of America electronic banking interface anywhere they use money on the Internet -- including purchases, auctions and money transfers. This will allow customers to -- as Pete said -- "pay everyone for everything electronically." We believe that the development of this new platform further demonstrates the two company's commitment to develop industry leading e-commerce initiatives.
Bank of America is committed to making banking work in ways it never has before and will continue to align with companies and technologies in the e-commerce arena that will digitally enhance our current capabilities, as well as create new ones. More importantly, we are integrating those capabilities to meet our customers wherever they want to do business -- including the Internet.
I think the coming together of these two leaders is very exciting. It creates a powerful alliance, accelerates the adoption and acceptance of electronic bill payment and -- most importantly -- increases convenience and value for consumers-truly a win/win/win situation. Further, it reinforces the Bank of America strategy to take advantage of the opportunities offered by e-commerce and the Internet, ensuring that we are bringing our customers the choices they want and need.
Pete Kight:
The commitment on both sides of this agreement should be evident. Both companies are absolutely committed to making managing financial transactions on the 'Net easy for consumers and businesses. Both companies are committed to setting the bar higher for what it takes to lead in financial electronic commerce. And both companies are committed to putting electronic billing and payment on Main Street.
Importantly, Jim and Bank of America made it a point to stress that this alliance is NOT just about Bank of America and CheckFree, but is about the entire banking industry. Every bank that offers electronic billing and payment will have the opportunity to offer these extended services to make the DDA -- the checking account -- central to customer's online financial life.
Bank of America, as the largest retail bank with the greatest national reach, is in a unique position to appreciate that what is good for the industry is going to be good for them. Having consumers transact online through their "chosen" financial service provider is exactly what the industry wants. We are committed to making that happen for a third of banking households in the next few years, and this announcement today will be a major catalyst in accelerating the pace.
