The two-month delay in a big acquisition deal will cut into earnings this year, Open Solutions Inc. executives said Monday — and analysts were not happy.
They had been estimating 21 cents a share for this quarter and $1.07 for the year — and the questioning had been friendly last week when the Glastonbury, Conn., vendor of core processing software said it had topped fourth-quarter estimates.
But Monday the company said it expects to earn 5 to 7 cents a share this quarter — and to merely break even on a GAAP basis. For the year it predicts pro forma earnings of 88 cents to 93 cents and GAAP earnings of 65 cents to and 69 cents.
The difference, insisted chief financial officer Kenneth J. Saunders, is the delay in buying Bisys Group Inc.’s bank-servicing business.
In September, when the $470 million deal was announced, it was expected to close at the end of 2005. But not until Friday was a closing announced; it had been delayed twice because Bisys, a New York provider of outsourced core processing, is restating earnings in an unrelated part of its business.
Mr. Saunders, an executive vice president, insisted that the current projections are consistent with September’s.
“Our guidance hasn’t changed, relatively speaking, as far as we’re concerned,” Mr. Saunders said. “We do think the numbers are consistent with the guidance that we gave earlier,” he said.
“I’m not sure what the Street expected, but now everybody has more accurate numbers to do their own modeling.”
Open Solutions had estimated in September that the Bisys unit would contribute $180 million to $195 million of revenue this year; $45 million to $55 million of earnings before interest, taxes, depreciation, and amortization; and 6 cents to 12 cents of earnings per share.
Last year Open Solutions’ revenue totaled $193.7 million, Ebitda was $41.3 million, and per-share earnings were 85 cents. The company now predicts revenue of $380 million to $390 million for this year, above analysts’ average estimate of $318.9 million.
David Koning, an analyst at R.W. Baird, summed up the attitude of many questioners Monday when he said the new earnings guidance comes up “quite short, relative to our expectations and the Street.”
Louis Hernandez, Open Solutions’ chairman and chief executive, said that even with the reduction, “post-Bisys we expect to be able to continue to deliver near double the industry average” for revenue growth
Mr. Saunders predicted $8 million of savings this year from combining operations such as finance. He said the company also expects new cross-selling opportunities from, for example, combining Open Solutions’ check-image clearing service with Bisys’ check-image software.
Open Solutions expects to more than double capital spending this year, from $11 million, because the costs of Bisys’ much larger hosted core-processing operation are all capitalized.
The purchase gives Open Solutions 220 new financial institution customers, 70 of which already run Open Solutions software hosted by Bisys. Mr. Saunders reiterated a pledge to continue to support Bisys’ core-processing system.
