Online Resources Corp. reported a wider third-quarter loss to shareholders on Tuesday, but said the Durbin Amendment will have a positive impact on earnings in the fourth quarter.
The Chantilly, Va.-based provider of online banking and bill payment software reported a net loss of $1.7 million, or $0.05 per share, compared to a loss of $0.7 million, or $0.02 per share in the third quarter a year earlier. Revenue rose 4.6%, to $38.4 million, compared to a year earlier. But earnings per share were above guidance, which was expected to be flat, Larry Berlin, vice president and research analyst for First Analysis Securities Corp., says.
"They did okay this quarter and they are ahead of the game," Berlin says.
Revenue was up, due in part to higher same-store payment transaction growth in the vendor's e-commerce business, where revenue growth has increased over 20% year-over-year, Online Resources president and chief executive Joe Cowan said during its earnings call on Tuesday.
The increase is "a direct result of the significant new ACV [actual cash value] from both existing and new biller clients that [were] booked in the last half of 2010," Cowan said during the call.
Durbin was also a factor. In October, parts of Online Resources' payments business benefited from the reduction in interchange fees, Cowan said.
Among other payments products, Online Resources offers expedited bill payment services to consumers who are late making payments, and it pays the interchange fee for the billers or debt collectors who are owed money. Consumers can make their payments using credit or debit cards.
"Where we are absorbing the interchange, we are seeing the benefit of reduced debit interchange charges on the large bank-issued cards we process," Cathy Graham, executive vice president and chief financial officer for Online Resources, said in an email.
Reduced interchange fees will add $1.2 million in revenue in the fourth quarter, Graham said during the call. The additional revenue is not likely to be sustainable, however.
"Despite the rollback of most debit card fees, consumers have shown an early move toward smaller banks and credit unions which are exempted from the lower Durbin fees," Graham said during the call.
Banks are also encouraging the use of prepaid and credit cards over debit, will also impact fees, Graham said.
Online Resources must burnish some nicks in its gloss, experts said. Under its founder and former chief executive Matthew P. Lawlor, the company had begun to perform below expectations, experts said.
Online Resources forced Lawlor to resign in 2010, and the company has been involved in a wrongful termination lawsuit with Lawlor since then. Most recently, a civil jury awarded him $5.3 million in damages in April. Online Resources is appealing that decision.
The company is currently in turnaround mode, and is an acquisition target, analysts have said.