CyberSource Q3 revenues jump 36%

Highlights:

• Revenue grew to $12.5 million, a 36% increase over the same period last year.
• Net income increased to $1.6 million, a 172% increase over $600,000 in the same period last year.
• Earnings per share was $0.05, a 150% increase over the $0.02 in the same period last year.
• Transaction volumes increased to 159.5 million, a 46% increase over the 109.4 million transactions processed in the same period last year.
• CyberSource added approximately 1,900 new customers in the third quarter, a 19% increase over the approximately 1,600 customers added in the third quarter of 2004.
• The company is reaffirming guidance for the full year with increases noted in total revenue and net income.

Third quarter 2005 financial results

Revenue: CyberSource's third quarter revenue was $12.5 million compared to $9.2 million in the same period last year and equaling prior guidance.

Gross profit: Gross profit was $7.2 million compared to $6.0 million in the same period last year.

Gross margin: Gross margin was 58% compared to 65% in the same period last year, equaling prior guidance. The decline in gross margin is due in part to an increase in global acquiring revenue which has a lower associated gross margin, but higher gross profit contribution per transaction compared to our gateway services. Global acquiring revenue represented approximately 24% of total revenue in the third quarter of 2005 compared to approximately 7% in the same period last year.

Operating expenses: Operating expenses were $6.0 million compared to $5.5 million in the same period last year, and less than guidance of $6.3 million.

Net income: Net income was $1.6 million compared to $600,000 in the same period last year, surpassing guidance of $1.2 million.

Earnings per share: Earnings per share was $0.05 compared to $0.02 in the same period last year, surpassing guidance of $0.03.

Balance sheet: Cash, cash equivalents, and short-term investments at the end of the third quarter in 2005 were $45.9 million compared to $43.9 million as of September 30, 2004. The company has no long term debt. No stock was repurchased during the quarter.

Nine-month Financial Highlights

Revenue: For the nine-month period ended September 30, 2005, total gross revenue was $35.6 million compared to $26.3 million for the nine-month period the year before.

Net income: The company recorded net income of $4.0 million or $0.11 per share for the nine months ended September 30, 2005 compared to net income of $1.8 million or $0.05 per share for the same period last year.

Highlights for the quarter

Customer growth

CyberSource signed approximately 1,900 new customers in the third quarter of 2005 including: Associated Press, Home Depot Canada, Tower Records, Viking Range, and Virgin Digital, the digital entertainment platform of the Virgin Group. New customers added this quarter increase the company's total customer count to approximately 12,000.

Existing customers that added new services or renewed agreements during the quarter include Air Canada, Briggs & Stratton, Casio, Columbia House, Match.com, Overstock.com, and the University of California at Los Angeles.

Global strength

CyberSource UK customers processed a record 21.0 million transactions in the third quarter of 2005, a 150% increase over the same period last year.

Product/service enhancements

In August 2005, the company launched Version 2.0 of Decision Manager, an automated order review system that scans eCommerce orders to ensure they meet merchant-established fraud screening criteria. Decision Manager 2.0 brings far greater customization to the order review process, resulting in quicker isolation of fraudulent orders and better management of payment processing costs for CyberSource customers.

In July 2005, the company announced the CyberSource PCI Scanning Service, through an agreement with ScanAlert, Inc. that enables CyberSource to provide online merchants with market leading security scanning services. Security scanning is a key component of certification to the Payment Card Industry Data Security Standard (PCI). Combining the new scanning capability with our managed PCI compliance and remediation services means CyberSource can address the full range of PCI requirements for customers large and small.

Customer satisfaction
The company's customer satisfaction level, derived from independent third party surveys, continues to be excellent. During the third quarter of 2005, 93% of enterprise and mid-sized customers contacted said the company had met or exceeded their expectations. Of that 93%, 86% said CyberSource customer support "excelled" or "exceeded expectations."

System uptime

CyberSource uptime for the third quarter was 99.99%.

Acquisition activity

On September 23, 2005, the company announced it had signed a non-binding letter of intent to acquire substantially all of the assets of CardSystems Solutions, Inc. of Atlanta, Georgia. On October 15, 2005, the company terminated negotiations due to the parties' inability to reach agreement on terms.

Guidance

CyberSource is providing guidance for the fourth quarter of 2005 and for the full year 2005 based on information available as of October 19, 2005.

For the fourth quarter, ending December 31, 2005: Total revenue is expected to be $13.8 million. Transaction and support revenue is expected to be $12.2 million, while enterprise software and professional services revenues are expected to be $800,000 each. Gross margin is expected to be 58%. Operating expenses are expected to be $6.3 million, and net income for the fourth quarter is expected to be $2.0 million or $0.05 per share based on an estimated average of 36.5 million diluted shares.

Guidance for the full year 2005: Total revenue is expected to be $49.4 million, slightly above guidance of $49.0 million provided on July 20, 2005. Gross margin is expected to be 59% compared to prior guidance of 60%. Operating expenses are expected to be $24.4 million, compared to prior guidance of $24.8 million. Net income for 2005 is expected to be $6.0 million or $0.17 per share, compared to prior guidance of $5.8 million or $0.16 per share. Earnings per share is based on an estimated average of 36 million diluted shares.

This fourth quarter and full year 2005 guidance does not include legal and other consulting costs incurred as a direct result of the CardSystems negotiations. Most of these costs will be recorded in operating expenses during the fourth quarter of 2005.

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