Online Resources Corp.'s financial results are starting to reflect the July acquisition of Princeton eCom Corp., one of several acquisitions that are changing its industry.
The acquisition helped the Chantilly, Va., online banking and bill payment provider jump from No. 3 in bill payment volume to a dead heat for No. 2 with Metavante Corp., a unit of Marshall & Ilsley Corp. of Milwaukee.
The purchase has boosted Online Resources' revenue but driven down profits. Last week it reported that fourth-quarter revenue rose 86% from a year earlier, to $29.4 million. It also reported a net loss of $2.7 million or 11 cents a share, compared with net income of $16.5 million or 60 cents a share, in the fourth quarter of 2005, when it benefited from a one-time tax benefit of about $13.8 million, or 50 cents a share.
For the full year, revenue rose 52%, to $91.7 million, and Online Resources reported a net loss of $4 million, or 16 cents a share, compared with net income of $22.7 million, or 88 cents a share.
Despite the red ink, the company is confident the acquisition has positioned it well.
"We took major steps forward with the Princeton eCom integration," Matthew P. Lawlor, Online Resources' chairman and chief executive, said in an earnings conference call. "All our business drivers are pointed in the right direction. The seeds of future growth have been planted."
Other companies are pursuing similar consolidation strategies. This month CheckFree Corp., the top provider of bill payment, said it would buy Corillian Corp. of Hillsboro, Ore. Though Corillian primarily serves large banking companies, it recently began trying to court small and midsize ones, which are Online Resources' sweet spot.
Intuit Inc. recently bought another vendor for small and midsize banks, Digital Insight Corp., and said it would improve the seller's online banking software by adding personal financial management features. An Online Resources product, Money HQ, already offers similar features.
Catherine Graham, Online Resources' executive vice president and chief financial officer, said in an interview Friday that the Princeton acquisition gives her company an early-mover advantage as the consolidation trend in online banking gains speed.
"In hindsight, we would do it again, no questions asked," she said. "Looking at the changes that have occurred in the landscape since the time we made our acquisition, I would say it is even more strategically important to us than it was at the time we did the acquisition."
Mr. Lawlor said the purchases by Intuit and CheckFree demonstrate that the market is looking for vendors with multiple products. He also said he is not concerned either rival would pose a significant threat to Online Resources, though his company did lose a large bill-payment customer, Royal Bank of Scotland Group PLC's Citizens Financial Group Inc. of Providence, R.I., to CheckFree in December.
"We see no material financial impact on us over the next year," Mr. Lawlor said last week. "I believe both acquisitions will actually help the industry."
Intuit, which also reported earnings last week, expressed a similar lack of concern about how CheckFree's purchase of Corillian would change the competitive landscape.
"I don't think it has any impact," Steve Bennett, Intuit's president and chief executive, said in a conference call with analysts. CheckFree and Digital Intuit have long been partners, with Digital Insight reselling bill payment services for both CheckFree and Metavante.
Intuit's revenue in its fiscal second quarter, which ended Jan. 31, rose 3% from a year earlier, to $763 million. Its diluted net income dropped 21%, to $145 million, or 40 cents a share.
The vendor said the Digital Insight integration was going smoothly.
"They're up on our network. That all happened the first weekend," Mr. Bennett said. "I'm not aware that we've lost anybody so far based on the acquisition."
John Kraft, an analyst with D.A. Davidson & Co. in Great Falls, Mont., said Online Resources could benefit from the other acquisitions.
"I do think that the CheckFree acquisition and the Intuit acquisition make strategic sense for those companies," he said, "but inevitably there will be some near-term rockiness, and there will be some clients that they have that are nervous," and Online Resources might be able to win those clients away.
Online Resources also has lost clients since it bought Princeton, Mr. Kraft said. Though there were many other factors in those clients' decisions that had nothing to do with the acquisition, "it's possible that those maybe were lost because of the rockiness that happens in the near term of an acquisition."
But that rocky patch is nearly over for Online Resources, he said. "It's not smooth sailing yet, but the rocks have turned to gravel. They've been sort of suffering because of it, and now all of a sudden their competitors are making acquisitions. It's very likely that the tables will turn."
Chris Penny, an analyst at Friedman, Billings, Ramsey & Co. Inc., said in an interview that the acquisitions can be both a threat and an opportunity for Online Resources.
"There's lots of banks out there," he said. "For every one customer you're going to say it presents a threat to, you're going to have another one that it presents an opportunity to."
