Despite this week's disappointing earnings report, officials at the bank technology company Broadway & Seymour Inc. told investors and clients it expects profits to rebound in the fourth quarter as a revamping o management takes hold.
The software and systems-integration company reported a third-quarter net loss of $5.73 million, mainly because of a noncash charge of $5 million attributed to the 1992 acquisition of the branch automation company NFCS Inc.
Broadway & Seymour reported a $1.2 million profit in the year-earlier period.
Without the charge, the Charlotte, N.C., company would have reported a loss of $736,000, or 10 cents per common share.
The company reported last month that it would not meet its earnings forecast for the quarter that ended Oct. 31, and "our accountants advised us to clean out anything we could this quarter," said CEO William Neal.
The one-time charge "was not necessarily a big surprise, and I expect them to come back in the fourth quarter," said Stephen Shook, an analyst with Interstate/Johnson Lane.
Mack Whittle Jr. chief executive of Carolina First Bank, Greenville, S.C., and a Broadway & Seymour client, also expressed confidence about the company's prospects. The company met well in advance with users of its software to tell them about third-quarter earnings, he said. "We're confident their core earnings are improving."
Investors also seemed sanguine after the quarterly report. Broadway & Seymour stock closed Monday at $8.75, up 25 cents.
Mr. Neal said the one-time charge was attributable to the goodwill booked as part the NFCS deal because Securities and Exchange Commission rules require companies that have recently gone public to account for acquisitions with purchase accounting methods rather than as poolings of interests.
Broadway & Seymour went public in 1992.
Excluding the nonrecurring charge, Mr. Neal said, the earnings dip was primarily caused by lower-than-expected profit margins in the systems integration business and lost revenue due to a lawsuit by Motorola Inc. over Broadway & Seymour's acquisition of Gateway Technologies Inc. last year.
The Motorola suit, now settled, concerned rights to image-processing technology Gateway developed.
Mr. Neal noted that revenues have been rising strongly this year. "Our fourth quarter should be our best ever," he added.
Broadway & Seymour is best known in the banking industry for its Liberty line of community banking software, its Amtrust trust accounting software, and its Bancstar branch automation system. But systems integration - mostly related to installation and modification of its software - provides most of its revenue.
Mr. Neal said he moved earlier this year to put a new management structure in the systems integration business to drum up business outside of its traditional software product lines.
One new area is in "client-server" computing, where networks of personal computers work together, making mainframes unnecessary. Another is "object-oriented" programming, in which software is assembled from reusable pieces, speeding system development.
"We're an extensive user of object-oriented programming, and we already have a large library of objects" that can be used for new products, Mr. Neal noted.
Another organizational change occurred early this year when Broadway & Seymour moved product management for its community banking software from St. Paul to Charlotte to streamline customer support.
"I think the management issues have been addressed, said Mr. Shook of Interstate/Johnson. "They should have a great year next year." Broadway & Seymour has a $90 million revenue backlog, he noted, and that doesn't include business generated by its recently opened New York office, "which I hear is doing very well."
Systems integration is "cornerstone" of the company's business, he said. "It makes them more than just a software vendor." But he acknowledged that systems integration is less visible to investors and industry observers, because of banks' penchant for secrecy on such matters.
"I know Broadway & Seymour did a lot work with NationsBank last year," Mr. Shook said, "but it's something the bank would rather not talk about."
Mr. Neal also pointed out that Broadway & Seymour defines its market broadly as "financial services," which is meant to include banking, brokerage, insurance, and other investment businesses.
Also, the acquisition this year of Corbel Inc. lets Broadway & Seymour provide technology solutions to pension consultants, lawyers, and accountants, Mr. Neal noted.
"Corbel has tremendous synergy with our trust business," he said.
Mr. Shook also noted that Broadway & Seymour has number of new products coming to market next year, including a major upgrade to its Liberty community banking package, with a new loan system; a version of Bancstar designed for large banks; and an image processing system for storing documents such as mortgage applications.