Like its Internet banking software competitors, S1 Corp. lost money in the third quarter but not as much as Wall Street had expected.
The Atlanta company reported a net loss for the quarter of $29.6 million, or 50 cents per share, compared with a net loss of $136.1 million, or $2.46 a share, a year earlier. The results bettered analysts consensus by three cents a share, according to Thomson Financial/First Call.
S1 followed the pattern set last week by three competitors Corillian Corp., Online Resources Corp., and Digital Insight all of which reported quarterly losses but beat expectations.
In a conference call Thursday evening to announce the earnings, Jaime Ellertson, S1s chief executive, said the results validate, particularly in this difficult economic climate, the strength of our multichannel enterprise vision and long-term business model.
Under Mr. Ellertsons direction, S1 has hedged its involvement in Internet banking by purchasing a provider of traditional branch automation software. Privately held Software Dynamics Inc., which S1 bought Sept. 20, sells branch and call center software and has a strong history of business growth.
The Software Dynamics deal fit S1s new enterprise eFinance strategy, in which it seeks to offer retail services over different delivery channels, greatly expanding the companys original focus on Internet-based services.
Internet banking products will continue to account for a large part of S1s revenues, said Steve Ely, the senior vice president of worldwide marketing. Right now they contribute roughly 40% of revenues, and that trend will probably be consistent next year, Mr. Ely said. So its a key part of our growth strategy .
Meanwhile, S1 is investing $60 million annually in research and development on its enterprise platform.
This is a critical differentiator for S1 and will pay off in the long-term growth of the company, said Matthew Hale, S1 controller and vice president of finance.
S1 has 2,600 financial institution customers worldwide, averaging two applications apiece, Mr. Ellertson said. Over the next year or so all new sales will be based on this new platform, he said.
We sell 14 applications and channel solutions today, so thats over 30,000 clearly defined sales opportunities for S1 without having to go out to find a new customer, Mr. Ellertson said. If we won only a quarter of those opportunities, well easily double the size of our company.
S1 also announced revenues of $70.6 million, a 10% increase from the same period last year. Software license fees also climbed by 3% quarter over quarter and 21% year over year.
Mr. Hale said a significant fourth-quarter focus will be on S1s enterprise platform suite of applications and its Market Leadership Program. S1 said NCR Corp. had become the 11th member of that program, which lets institutions and vendors test S1s enterprise platform products and provide input. Commonwealth Bank of Australia, Allfirst Bank in Baltimore, Intrust, and Bank of Hawaii are some other members of the program.
Analysts said S1s favorable third-quarter results did not surprise them.
There were concerns post-Sept. 11 that they were going to miss the quarter, and the stock traded down to $6, said Nikolai D. Fisken, a Stephens Inc. analyst. When they were able to restore everyones confidence, the stock quickly rebounded to where it is today.
S1 shares closed Friday at $11.93, up 6.14%.
On Friday, UBS Warburg reiterated its strong buy rating on S1s stock and its 2002 estimates of $341 million of revenues and 66 cents of earnings per share before interest, taxes, depreciation, and amortization, which is above the upper range of managements 56-to-64-cent guidance.
The company reaffirmed its optimistic 2001 and 2002 guidance. It forecast revenues by yearend of $277 million to $279 million and a cumulative loss of $3.21 to $3.25 per share this year. For next year, it expects revenues of $329 million to $334 million and a loss of 21 to 30 cents a share.
