S1 Corp., sensing that its opportunities with the largest banks may be tapped out, says it plans to begin pressing its case as an Internet software vendor to midsize banks, a market in which the Atlanta company lags.
Executives at S1 said last week that it aims to double its team of salespeople pursuing midsize prospects for S1's Enterprise suite and to put less sales emphasis on the biggest banks. Instead it will rely more on such marketing partners as International Business Machines Corp.
In a conference call Tuesday to discuss third-quarter earnings with analysts and investors, S1 executives defined the midsize market broadly, saying that it includes about 3,000 institutions beneath the top 30 U.S. banks and ranges down in size to those with a few hundred million dollars of assets.
Midsize banks represent a larger potential market than the biggest ones, Steven P. Ely, the vendor's senior vice president of worldwide marketing, said in an interview. They are also better prospects for the entire line of software that S1 now provides, he said. "We think that's a great opportunity for us."
In a June report, Celent Communications LLC of Boston ranked S1 third among online-banking vendors serving large banks, which it defined as those with assets topping $20 billion. Financial Fusion Inc. and Corillian Corp. were first and second.
Corillian ranked first, Financial Fusion second, and Alltel third in Celent's ranking of vendors serving midsize banks. Among those serving banks that have assets below $5 billion, Digital Insight Corp. came in first, followed by S1 and Online Resources Corp.
Celent senior analyst Alenka Grealish, who wrote the report before S1 announced its shift in emphasis toward midsize banks, said the change makes sense but that it will not necessarily be easy for S1 to pick up new clients in what has become a stingy technology-spending market.
"The challenge right now is that banks are relatively conservative when it comes to new investment," Ms. Grealish said. "There's not that dire need to change."
Jaime Ellertson, S1's chief executive officer, told analysts that the company faces "relatively few competitors today." No longer competing as a pure-play Internet software vendor, S1 and its enhanced product set - which includes customer-relationship management, branch automation, and call center packages - now have to deal with a variety of competitors from different parts of the industry.
S1's advantage is in its integration of the many components, Mr. Ellertson asserted: "We're at least a year or two ahead" of the competition.
S1 reported last week that its net loss had narrowed by 82% in the third quarter to $5.2 million, or 7 cents a share, against the year-ago period. Revenues rose 2%, to $58.5 million.
The operating loss of $3.5 million, or 5 cents a share, was, was a penny worse than the analysts' consensus expectation, but that did not seem to bother Wall Street.
"S1 continues to build out its Enterprise customer base in a very difficult software market, while also adroitly cross-selling to its existing base of 4,000 financial institutions," said Craig Peckham, an analyst at Jefferies & Co. who rates the stock a "hold."
S1 shares closed Friday at $4.50, up 20% from the previous week.
Separately, the check printer and software company John H. Harland Co. reported Thursday that its third-quarter earnings more than tripled, to $16 million, or 53 cents a share, and that its consolidated sales grew 6%, to $189.6 million, in the three months. Analysts had expected earnings of 51 cents a share.
Though the results beat estimates, analyst Stephen A. Laws of W.R. Hambrecht & Co. cut his recommendation Thursday to "hold" from "buy." He cited Harland's flat earnings outlook for 2003 because of the loss of a large customer, increased pricing competition in the check printing business, and higher customer service costs.
Harland shares closed Friday at $19.05, down 18% on the week.
