The online banking software vendor S1 Corp. said Monday that it had ousted chief executive Jaime Ellertson and lowered its earnings forecast for the second quarter.
Chris Watson, S1's senior vice president of corporate communication, said Mr. Ellertson's predecessor, James "Chip" S. Mahan 3d, a co-founder of the Atlanta company and its chairman, had taken over as CEO.
Ms. Watson would not give an explanation for the move, which surprised analysts, but said S1 expects to discuss it during its earnings conference call on Aug. 4.
Though S1 is profitable, its revenue growth has been falling since it went to new pricing for its flagship Enterprise product line last August. Previously the company charged a large one-time licensing fee as well as a recurring maintenance fee; it now charges only a regular subscription fee.
Ms. Watson said there are no plans to abandon the subscription model.
S1 has said the subscription model generates more revenue over the long term and can lead to more cross-sales as customers buy several different Enterprise products. However, observers note that eliminating the large initial licensing fee has hurt S1's earnings.
Analysts could only speculate as to the company's rationale. Some said it may have been linked to the change in pricing. Another said it could indicate that S1 is considering selling itself.
"It might be that the board wants to sell the company, but the former CEO didn't want to do it," said Gwenn Bezard, a research director at Aite Group LLC of Boston.
S1 released preliminary second-quarter results Monday. It expects to report revenue of $62 million to $62.5 million, with $54 million to $54.5 million coming from its financial institutions segment. Earlier it had projected revenue of $63 million to $64.5 million. In last year's second quarter its revenue was $60.9 million.
Revenue for 2004 fell 3% to $241 million, though in the first quarter S1's revenue rose 11%, to $62.4 million, and net income rose 62%, to $720,000, or 1 cent a share. But it was downgraded by some analysts after releasing its first-quarter results because it said then it would no longer provide full-year guidance.
S1 said the new pricing has made it harder to provide accurate long-term guidance, but analysts said they would have preferred even a broad range to nothing.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., said that the management change, though sudden, made sense.
"The company has been struggling, and I think this is obviously a move to get things kick-started again," he said. Mr. Mahan "has been pretty involved over the last few years."
Mr. Bezard supports subscription pricing, but noted that it takes some time for the model to prove itself. Companies that have used subscription pricing successfully for years tend to have very happy investors, he said.
And since S1 remains committed to subscriptions, Mr. Bezard said that revenue growth slippage might not be the reason behind Mr. Ellertson's departure. He speculated that if management really is trying to sell the company, Mr. Ellertson might have been shown the door if he had been opposed to a deal.
Mr. Bezard said that a core processing company could be interested in a large online banking technology provider like S1. "The core processors have been making a number of acquisitions left and right over a couple of years," he said. And though it has some major banking customers, S1 sells mostly to small and midsize institutions, which Mr. Bezard called "the sweet spot of core processors."
Jerry Silva, the service director for the retail banking and delivery channel practices at TowerGroup Inc., a Needham, Mass., unit of MasterCard International, said he was not aware of any deal to acquire S1, though he agreed that core processors might be interested.
He said that subscription pricing is somewhat new to the online banking industry, and investors remain wary of it.
Still, he said he was confused by the management shake-up. "There's nothing I would have found obviously supporting the move" to remove Mr. Ellertson, he said. "I think Jaime did a really good job."
However, Mr. Silva also said he is comfortable with Mr. Mahan's taking over. "He knows the business" a lot better than anyone S1 could have brought in from outside.
