A year ago Carreker Corp. seemed to be in a very strong position as one of the imaging technology vendors of choice for several major banks among the early leaders in implementing image exchange.
But the fiscal third-quarter results Carreker reported Tuesday show that imaging gear sales have slowed, and industry watchers say it could be at least a few more years before the mainstream market starts to invest heavily in the technology.
“I think a lot of banks have said, ‘I’m going to sit back and wait,’ ” said J.D. “Denny” Carreker, the Dallas company’s chairman and chief executive.
Revenue for the quarter that ended Oct. 31 fell 2.5% from the same period last year, to $30.6 million. Net income plummeted 62%, to $513,000, or 2 cents per share. Also, the vendor’s president and chief operating officer, Mike Hansen, “has chosen to leave the company,” Mr. Carreker said Wednesday.
Still, the company managed to exceed the earnings guidance it had issued for the quarter, and revenue at all of its units except consulting increased from the fiscal second quarter, Mr. Carreker said.
He noted that KeyCorp, one of Carreker’s early customers, is using its image technology to settle checks with J.P. Morgan Chase & Co. through Clearing House Payments Co. LLC’s still-in-development image exchange system.
KeyCorp and JPMorgan Chase are the only banks currently involved in the pilot test, which began in August. However, Mr. Carreker said that Wells Fargo & Co. is using his company’s products to develop its image systems.
Several other major banks — including Bank of America Corp., Wells Fargo & Co., Wachovia Corp., Comerica Corp., and U.S. Bancorp — have said in the past year that they plan to use the system to exchange images, but none have disclosed a schedule for doing so.
Some of those contracts were signed more than a year ago, and new sales since then have been slow for Carreker; many other banks have been content to watch their competitors work out the kinks in the evolving image exchange systems.
Mr. Carreker said that at the start of this year, he thought that banks preparing for image exchange “had every intention of being in pilot programs in the first quarter, and of improving their systems in the second quarter, so that when Oct. 28 came, they could go, go, go.”
The Check Clearing for the 21st Century Act, which took effect Oct. 28, is widely expected to prompt a transition to the clearing of paper checks across image exchange networks, but the banks have been slower to move than had been expected.
“Banks move slowly. There’s no reason for them to rush into this,” said Alenka Grealish, the manager of the banking group at the Boston market research firm Celent Communications LLC.
It could be 2007 before the percentage of transit checks being cleared through images reaches a critical mass of about 60%, she said. After that the banks that have been sitting on the fence about whether to implement imaging systems may finally be compelled to do so.
Ms. Grealish said the banking industry is bifurcated — with a small group of early adopters that made their imaging purchases more than a year ago, and the rest of the industry, which has yet to settle on a strategy.
“We’re in a lull period, where the early adopters have yet to demonstrate” that adopting imaging systems can produce real economic gains, she said. “Until that happens, you won’t see a big uptick” in system sales, because the rest of the industry has no motivation to follow the early adopters’ lead. “The volume is just not there yet.”
She estimated that less than 1% of transit checks will be cleared through imaging this year, though the number could increase to 15% next year.
Gary R. Craft, the chief executive of the San Francisco equity research firm Financial DNA LLC, said slow decisions by banks would translate into slow sales for Carreker and other imaging vendors.
“The outlook is ill-defined,” he said. “Check 21 is ill-defined, and so is its revenue contribution” for vendors.
Carreker cited slow decisions by banks as a key factor in its third-quarter results and said the same factors would affect sales this quarter. It expects both revenue and profits to be flat, or to drop slightly, in the fiscal fourth quarter, Mr. Carreker said.
The company is hoping to get more revenue from its consulting operations, according to Mr. Carreker. He noted that he has hired Suzette Massie, a partner with Accenture, to head its consulting unit. She will join Carreker this week.
Mr. Carreker also said he has taken over Mr. Hansen’s duties as the president and COO.
Despite the poor sales, he said the vendor plans to start offering several new products over the next several months. When the banks are ready to make purchasing decisions, he plans to be ready, and having the products already available “will give us an opportunity.”
