During its second-quarter earnings conference call, S1 Corp. said it is making progress in shifting customers to a recurring-revenue pricing system, but it said little about whether it will sell itself.
The Atlanta banking technology provider said in May that it was exploring "strategic alternatives" in response to pressure from an investor group. Previously, S1 had told the investors that its business model was sound, and that it had no interest in pursuing a sale. However, once it agreed to explore its options, some observers said it might be trying to buy time to improve its financial condition and prove it could function independently.
The second-quarter results did little to support the notion that S1 can function on its own. Revenue rose 8% from the first quarter but dropped 1.6% from a year earlier, to $46.7 million. For the quarter, it posted a net loss of $2.1 million, versus a profit of $2.3 million a year earlier. It spent $728,000 to evaluate its strategic alternatives and $350,00 to settle a disputed patent claim.
After the market closed Tuesday, James S. "Chip" Mahan 3rd, S1's founder, chairman, and chief executive, said during the conference call that the board is "pleased with the progress" the company is making in exploring its alternatives, but he would not elaborate.
But analysts saw some clues. John Kraft, an analyst with D.A. Davidson & Co. of Great Falls, Mont., said the FRS unit, which sells risk and regulatory compliance products, may be up for sale, because S1 has categorized it as a discontinued operation.
"You just don't put it into discontinued operations until you want to get rid of it," Mr. Kraft said.
Citing the exploration of options, S1 executives refused to take any questions, ending the earnings conference call after about 20 minutes of prepared comments.
The stock price merely twitched Wednesday. At midday it was down 0.93% from Tuesday's close, to $4.26 a share, which is not likely to appease the shareholders who have pushed for a sale to get a higher return on their investment.
S1's flagship product line is its Enterprise software, which includes several online banking products as well as front-end software for other banking channels. In past quarters it separated that line's results from those of its Edify voice and speech recognition products, which it sold in the fourth quarter to Intervoice Inc.
Since the first quarter S1 has been listing results from its Postilion payment processing offering separately, filling the void left on its earnings sheet by the Edify sale.
With the latest versions of Enterprise, S1 has shifted its pricing from a licensing fee to a subscription model with lower initial payments and recurring revenue. Though the new model promises longer-term profitability, each sale gives S1 less up-front revenue, upsetting year-to-year comparisons.
One of the ways S1 is trying to improve its profitability is to upgrade its current customers from older, high-maintenance versions of Enterprise products to the newer versions.
To this end, S1 has been using touting its security products. The Federal Financial Institutions Examination Council's mandate that by yearend all banks use more than just a password to protect their online banking users for high-risk transactions is prompting banks to purchase security software.
In February, S1 announced a partnership with PassMark Security Inc., which RSA Security Inc. of Bedford, Mass., bought in April. S1, which supports PassMark's technology only in the latest versions of Enterprise, said it is doing so to prompt its clients to upgrade.
The vendor is "doing better, and I think a lot of people had kind of written them off for dead," Mr. Kraft said. "Frankly, I'm surprised the stock isn't reacting a little better."
However, he said the results do not provide S1 with much ammunition to fend off calls for a sale. "The more likely it is that these guys can make it on their own, the less need there is to sell. They're showing with their results that they're not giving up," but "they're certainly not out of the woods."
Larry Berlin, an analyst for First Analysis Securities Corp., said S1 is "making progress" in improving revenue. "They're always making progress, but it's a slow walk."
Mr. Berlin also said he did not know what to make of S1's refusal to take questions from analysts; that may or may not mean a sale is near.
But if a sale were near, S1 could have simply refused to take questions on that topic alone, he said. It's possible that the vendor's management is obeying the whims of its overly cautious lawyers, or "it could be a sign that they don't feel like answering questions."
