James “Chip” Mahan 3d, the longtime chairman of S1 Corp. and now again its CEO, has delayed the release of the online banking software company’s next major product upgrade.
A new version of its Enterprise suite had originally been scheduled for release this summer, but Mr. Mahan said it will not be out until late in the fourth quarter or early 2006.
He spoke Thursday during the Atlanta company’s second-quarter earnings conference call. It was his first public appearance since taking the helm July 25 from the ousted Jamie Ellertson, whom Mr. Mahan had also preceded as chief executive
The management shakeup prompted speculation that S1 might be positioning itself for a sale — speculation that Mr. Mahan tried to put to rest.
In an interview after the earnings call, Mr. Mahan said that though he expects to make further changes, a change in ownership is not among them.
S1 is very close to being what he envisioned at its founding in 1995, he said. “Does it make any sense whatsoever to sell the business when you’re on the verge of completing your 10-year dream? No.”
S1 introduced its first Enterprise product in 2001. Mr. Mahan blamed managerial decisions, not the people working on the upgrade, for the delay of Enterprise 3.5.
“I think … [previous management] was pushing our people a little too hard,” he said in response to an analyst’s question.
“I think that, historically, we rushed in this company, only to find ourselves in a position to take a step back,” he said. “I think we just need to take a little bit more time with all of our software, not just the 3.5 release.”
“This has nothing to do with the talent in the development group,” he said.
In the interview, he said the Enterprise project was not a reason for Mr. Ellertson’s termination, nor would he give any other reason.
Mr. Ellertson became CEO in 2000, taking over from Mr. Mahan, who had held the job since 1995.
S1 would not provide current contact information for Mr. Ellertson, and other efforts to find him were unsuccessful.
Mr. Mahan said the various Enterprise 3.5 products will be made available only after they are tested individually with some customers. He said he would not talk about any other strategic changes he plans to make at S1 for at least another two weeks, after meetings with employees.
S1’s second-quarter revenue rose 4% from a year earlier, to $62 million. Net income rose 274%, to $2.3 million.
The company said it expects revenue of $61 million to $64 million this quarter and gave per-share earnings guidance of a 1 cent profit to a 3 cent loss. Chief financial officer Matthew Hale said the earnings estimate excludes charges related to internal restructuring and severance payments, including Mr. Ellertson’s.
Chris Penny, an analyst at Friedman, Billings, Ramsey Group Inc., said that S1 needs to cut its costs, and that one way to do so would be to trim its payroll.
The $12.7 million it spent last quarter on product research and development “is 20% of revenue,” he said. “If you look at other software companies, it’s 10% to 15%.”
“They need to cut costs, and R&D, I would say, is probably one of them.”
Mr. Penny kept his rating of S1 at “market perform” and said that despite its healthy revenue, its income is low. S1 has “a lot of work cut out for it,” he said.
Selling the company remains a sensible option, and Mr. Mahan’s saying he was not considering doing so was not surprising, Mr. Penny said.
“I think there are assets within S1 it would make sense to sell,” Mr. Penny said, but “it doesn’t do him any good to suggest he’s going to sell the company.”
Gwenn Bezard, a research director at Aite Group LLC of Boston, said that though earlier he thought Mr. Mahan might have wanted to sell, he does not think that now.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., kept his rating of S1 at “neutral” despite the promise of changes.
“There’s value, but they haven’t really been able to get some big traction in this Enterprise strategy that they have kind of been building toward these past couple of years,” he said in an interview.
The strategy of offering software for every channel “makes sense,” Mr. Kraft said. “The banks liked the idea of it, the banks need it — but as a practical matter, it’s a difficult sale,” he said.
S1 is “barely eking out profits,” he said, “and they’re spending a lot of money. There is a need for some significant changes, and a new CEO oftentimes can do that.”
