Lagging Sales at CFI Send Profits Down - And Stock Follows

CFI ProServices Inc., the banking software company, announced last week that first-quarter earnings would be much lower than analysts' estimates - and the news sent its stock into a tailspin.

Matt Chapman, chairman and chief executive officer, said Wednesday that earnings would be about 5 cents a share, against analysts' expectations of 15 to 19 cents. CFI earned 16 cents a share in the first three months of 1994.

"Large bank sales that we expected to close during the first quarter will not be completed, and new product sales are softer than planned," Mr. Chapman said.

Stock in Portland, Ore.-based CFI, which is traded on the Nasdaq exchange, quickly dropped nearly 30%, closing Wednesday at $12.50 per share. The company went public in August 1993 at $10 a share and since then had been a fairly steady performer.

CFI closed at TK a share Friday, down TK for the week.

Jim Bradshaw, an analyst at Pacific Crest Securities in Portland, said he downgraded CFI to "hold" from "buy" on Wednesday after learning of the announcement, but reversed himself late in the day.

"There was a bit of a market overreaction," he said. "I think at $12 a share the stock's pretty cheap."

Mr. Bradshaw said the earnings slip mostly reflects CFI's recent attempt to sell more compliance and retail banking software to institutions with more than $2 billion of assets. The effort is creating longer, less predictable sales cycles, he said.

"They have some technologically sophisticated products that can appeal to bigger banks," he explained. "Business with larger institutions has higher margins, but the sales cycles can be six to nine months long, compared with six to nine weeks for small banks."

Mr. Chapman concurred. "As we have stated previously, we expect our continued emphasis on large institution sales to make our earnings less predictable at times," he said.

Mr. Bradshaw said he now estimates CFI will earn 85 cents a share in 1995, down from his previous estimate of $1. "I expect the stock (price) will whip around a bit more," he noted.

To offset that volatility, Mr. Bradshaw, noted CFI has a relatively high level of recurring revenue - 37% - for a software company, a number he expects to remain stable for the foreseeable future.

He was also upbeat about the prospects for CFI's new products, particularly its Personal Branch home banking software.

"Home banking is on the verge of becoming a very big part of CFI's business," he said, while acknowledging that the market for bank-at-home technology is still evolving.

"CFI switched to a more variable pricing scheme, which makes it less risky for banks to get started. I think they're on the verge of some sales."

CFI spokesman Greg Meyers said his company was close to signing deals with third-party processors to operate the Personal Branch software for banks, agreements that could also help jump-start the product.

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