CheckFree Corp.'s earnings and transaction volume fell sharply in its fiscal third quarter, and the online bill-payment provider lowered its guidance.
In discussing the results, the company said a pair of deals aimed at diversifying its product line would eventually provide a financial boost.
"We don't believe that bill payment, stand alone by itself, is the long-term product," chairman and chief executive Pete Kight said Tuesday in a conference call with analysts.
CheckFree's fiscal third quarter ended March 31. Its bill-pay volume from banks rose 6% compared with the previous quarter and is expected to grow 1% to 3% in the current quarter. Biller volume, which grew 1% in the third quarter, is expected to fall 1% to 3% in the current one.
Net income fell 20%, to $30 million, from a year earlier. Revenue rose 1%, to $230.2 million.
David Mangum, the Atlanta company's chief financial officer, called the volume decline "in line with our models for cyclical transaction growth patterns."
Mr. Kight said software sales to banks are essential for revenue growth, because the software encourages consumer online bill payment.
This month's acquisition of the payments technology vendor Carreker Corp. is expected to help software sales, and CheckFree's deal to buy the online banking vendor Corillian Corp. would expand the buyer's software product line. The Corillian deal is expected to close in June.
The slow transaction volume growth prompted CheckFree to lower its full-year earnings guidance to a range of $1.46 to $1.48 a share; its prior guidance was a range of $1.58 to $1.62.
CheckFree could be on the verge of losing a large chunk of business from a major customer. On April 11 it said that a "large customer" was considering handling some of its bill-pay work in-house.
The statement came out the same day as a research report from JMP Securities, that said Bank of America Corp., a CheckFree customer, was thinking of taking a good portion of its bill-payment work in-house.
CheckFree said Tuesday that it had nothing new to say on the matter.
Matthew J. McCormack and Blake Hamm, analysts for Friedman, Billings, Ramsey & Co. Inc., wrote in a research note published Wednesday that though Mr. Kight at least touched on the B of A question Tuesday, he "did nothing to alleviate & fears" that B of A could end or scale back its lucrative relationship with CheckFree.
Mr. McCormack and Mr. Hamm said the Carreker and Corillian deals are hurting CheckFree's business in the near term. "Clients are delaying spending due to expected changes in & [CheckFree's] product set coming from recent acquisitions, while management is expecting sales to accelerate next year on product sets yet to be fully integrated and marketed."
Tien-Tsin Huang, an analyst with J.P. Morgan Securities Inc., wrote in a research note that the bill-payment volumes were good but were countered by the poor software sales.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., said in an interview Wednesday that CheckFree's "transaction growth was stronger than expected, and the industry is healthy."
He said he was not worried about the slowing growth rates, because the current quarter "is seasonally a weaker quarter," he said. "We've seen that."
However, CheckFree's poor software sales were more of a concern. "It's becoming a bigger piece of the pie," and can offset misses in its bill payment business, Mr. Kraft said.
