eFunds Corp., which provides electronic payments software and outsourcing services, reported strong third-quarter earnings and said the newly acquired WildCard Systems, a prepaid card company, bolstered revenue.
Net income totaled $15.8 million, 48% more than a year earlier, the Scottsdale, Ariz., company said Wednesday.
Revenue fell 4.9%, to $133.2 million, but the year-earlier figure included results from eFunds' automated teller machine business, which it sold a year ago to the ATM operator TRM Corp. for $150 million.
Excluding the divested business but including WildCard, revenue was up about 25%, the company said. It bought WildCard in July.
Net revenue for eFunds' electronic payments segment, which houses the WildCard business, was $71 million, up 45%, chairman and chief executive Paul F. Walsh told analysts during a conference call Wednesday. That includes $20 million of revenue from WildCard and a 21% increase in revenue in eFunds' bank electronic funds transfer processing business.
"I'm pleased to say that the performance of … [WildCard] is exceeding our original expectations," Mr. Walsh said.
The WildCard operation had a $2.1 million operating loss, but eFunds said it is expected to be accretive to earnings in the current quarter. WildCard is expected to generate net revenue this quarter of $24 million to $27 million.
One positive result from the WildCard deal was the extension of a prepaid card processing contract with Bank of America Corp. to May 2006. "Wildcard had received notice that this contract was going to be terminated at the end of 2005 before we signed an agreement to buy them," Mr. Walsh said. "So we're pleased with the continuing progress of our discussion with this institution."
A weak spot in eFunds' lineup is its software business. Mr. Walsh said software sales were slightly down, and the company is trying to beef up the operation by hiring more people.
He said that the software business often "provides entree into important customer relationships." Both the Postal Service and Societe Generale Group, a large French banking company that has expanded into other European countries, were initially drawn to eFunds by its software before expanding their relationships with the processor to include other services.
In June eFunds signed a long-term deal to provide complete card processing services, including ATM management, merchant acquiring, back-office services, and card management, for Societe Generale's international retail subsidiaries.
eFunds' outsourcing segment also had a weak quarter. Revenue was flat, and operating income dropped 33.3%, to $2 million. Mr. Walsh said the decline was due to a large customer-migration project that wrapped up in July and the loss of a telecommunications customer that had been acquired.
The company said it expects its full-year revenue to grow by about 18% from the $431 million it reported in 2004. It had previously forecast growth of 18% to 22%.
Shane Diamant, a analyst for Stephens Inc., said that eFunds had a decent quarter.
"The top line I guess was a little lighter than we were looking for, but in typical eFunds fashion they always manage to squeeze a little more out of the bottom line," he said.
He said the company was poised for a strong 2006 because it has won several large contracts recently, including the Societe Generale and Postal Service deals, and two processing deals with large banks that were sold through a marketing arrangement with MasterCard International.
