The online banking outsourcing provider Digital Insight Corp. hopes to cut costs at a money-losing unit and attract new prospects for its services by outsourcing the unit's call center work.
Under a multiyear agreement announced last week, the Calabasas, Calif., vendor has hired PSCU Financial Services Inc. of St. Petersburg, Fla., to run the telephone operations for its lending division, which provides an outsourced loan origination and underwriting system.
PSCU, the nation's largest credit union service organization, has also agreed to offer Digital Insight's lending system and outsourced online banking and cash management services to its member credit unions. PSCU is owned by 500 credit unions nationwide.
Jeffrey E. Stiefler, Digital Insight's chairman, president, and chief executive, said PSCU would be able to provide better customer service and call center technology at lower costs than Digital Insight could do on its own.
Though PSCU serves credit unions, Mr. Stiefler stressed that the agreement does not signal a shift in Digital Insight's strategy to focus its marketing efforts more on credit unions than on banks.
"PSCU was the best fit for us, both because they had a world-class call center operation and also because they have an existing customer base for our products," he said.
The real key to the agreement was quality of PSCU's call center, Mr. Stiefler said. "If they had been a marshmallow company we would have been equally interested."
About two-thirds of Digital Insight's 1,700 clients are banks, and it focuses on the middle market.
PSCU agreed to license the Digital Insight lending solution and to resell all three Digital Insight product lines. The agreement includes monthly minimum payments that ensure a guaranteed revenue stream for Digital Insight. And PSCU could co-fund future improvements to Digital Insight's lending system in exchange for a larger share of product revenues.
The lending business is relatively small, with 217 clients. It generated just 5% of Digital's third-quarter revenue of $53.2 million, and it had an operating loss of $532,000; in the year-earlier period it had an operating profit of $3,000.
Mr. Stiefler said by outsourcing the call center work, "we can at least return it to a point of breakeven in '06."
Mr. Stiefler said PSCU has offered jobs to the 100 staffers at Digital Insight's Sacramento call center, and he said some were considering the offer, though that would involve relocating to one of PSCU's call centers, either in Tampa or Phoenix.
Digital Insight expects to take a one-time charge of $1.9 million, or 4 cents per diluted share, as exit costs, to write down the call center infrastructure and to make severance payments to employees. The charge will be recognized in the current quarter and in the first half of 2006.
Mr. Stiefler said the charge would not affect Digital Insight's revenue guidance for this quarter or next year. This deal was in the works when the company reported its third-quarter earnings in October, and the costs were factored into the guidance it gave then.
Digital Insight expects fourth-quarter revenue of $55.2 million to $56.2 million and 2006 revenue of $240 million to $243 million.
However, the charge will drag down earnings per share this quarter and next year. Digital Insight now expects to report fourth-quarter EPS of 17 to 19 cents instead of the 19 to 20 cents it had forecast. It expects 2006 per-share earnings of 79 to 86 cents, down from the previous forecast of 82 to 88 cents.
PSCU president David J. Serlo said in a press release from Digital that the arrangement would benefit both companies. "Digital Insight gains the world class service offered by our contact centers," he said. "At the same time, the reseller agreement rounds out our product offerings with the addition of consumer lending and business banking solutions."
