Online Resources Corp. is taking a less-is-more approach, consolidating many of the platforms bankers rely on after a series of poorly executed acquisitions gave it a hodgepodge of overlapping software.
The Chantilly, Va., technology vendor has already started combining some of its Internet banking and bill-payment platforms, which executives say should eliminate client confusion and help it compete against larger rivals. Ultimately it expects to reduce its product lineup to four from nine systems.
Online Resources is so confident in this strategy that its board of directors turned down several offers it received in January from unnamed suitors to do a deal, it said Tuesday as it announced fourth-quarter earnings.
"They just felt that this was the right approach for the company, for the shareholders, to move forward with the strategy," Joseph Cowan, Online Resources' president and chief executive, said in an interview Wednesday. He declined to discuss details for why the board turned down the offers.
Some analysts speculated the price potential suitors offered was too low, but they expect the company to remain a target in the future. Online Resources' decision to go it alone — as well as a disappointing earnings outlook — led its shares to plummet 38.7% Wednesday, to $3.71.
Cowan took the helm in June after several management shuffles and a bitter proxy battle with a hedge fund resulted in the replacement of several directors. He is matter-of-fact about Online Resources' previous errors, including a lack of emphasis on managing acquisitions and too much focus on building "shiny new objects" in hopes of discovering the next big thing.
"The real weakness in the company really comes back to a lack of focus," Cowan said. "We had some acquisitions [and] the company didn't do a lot to integrate those."
"From an operations standpoint … we need to clean up the foundation," Cowan added.
For example, the company is just completing the move of clients of Internet Transaction Services Inc., which Online Resources acquired in 2007, to another bill-payment platform, William Newman 3rd, Online Resources' vice president of finance, said in an interview on Wednesday.
Consolidating products could help Online Resources use its investment dollars more efficiently, said Christine Barry, a research director with Aite Group LLC in Boston. "It's certainly a strategy that we're seeing a lot of vendors taking right now," Barry said.
Motivating customers to move from systems that are being phased out to surviving platforms is a challenge that can take longer than vendors expect, Barry said.
Online Resources said a 1.2% year-over-year decline in fourth-quarter sales, to $37.8 million, was partly due to lower renewals of clients using only its bill-payment software. The company reported a net loss attributable to common stockholders of $2 million, or 6 cents per diluted share, compared with a net loss of $1.1 million, or 4 cents per diluted share, a year earlier. It said it expects to report first-quarter revenue of $38.2 million to $38.7 million and a net loss of 1 cent to 2 cents per share.
Thomas McCrohan, an analyst with Janney Montgomery Scott, downgraded Online Resources' shares to "neutral" from "buy" on Wednesday. His research note cited its "uninspiring" outlook and decision to remain a stand-alone company. John Kraft at D.A. Davidson & Co. reiterated his "buy" rating in a research note Wednesday. Online Resources, he wrote, is "in the early stages of a turnaround" that might result in a sale.
