If Fundtech Ltd.s current woes are any indication, some providers of banking technology may not have much to look forward to in upcoming quarters.
Blindsided by a shortfall of closed deals and a significant deterioration of market conditions, officials at the cash management software vendor said Wednesday that they expect this quarters results to be substantially worse than previously anticipated and that more jobs will be cut.
The Israeli company, whose U.S. corporate headquarters are in Jersey City, said it expects to post a second-quarter loss of 17 to 24 cents per share, compared with the 9-cent profit Wall Street analysts had been expecting, according to Thomson Financial/First Call. Second-quarter revenues are also expected to be lower: $10 million to $11 million, compared with the $15 million analysts had foreseen.
Fundtech, which announced last month that it would cut its work force of about 440 by 8% to 10%, also said that it plans to cut its staff a further 12%. Half of the additional cuts will be in research and development, and the other half will be in operating, administrative, and marketing posts.
Reuven Ben-Menachem, Fundtechs chairman, president, and chief executive officer, said it will take from six months to a year for things to get better. The company expects this years revenues to be flat or lower than last years $47 million; analysts had been looking for $64 million.
Michael Carus, executive vice president and chief operating officer, said during a conference call with investors on Thursday that lengthening sales cycles and less lucrative deals are behind the reduced expectations. We are currently experiencing numerous postponements and deferrals of purchasing decisions by customers of all sizes across all geographic regions, he said.
Though the overall economy has been wobbly since the stock market decline began last spring, conditions have gotten even worse in the last several months, Mr. Carus said. Customers who had been in a wait-and-see mode became more solid on the notion that they are going to [delay] deals or in some cases freezing them, he said.
Company officials did not say how many deals failed to close during the quarter they plan to announce this information during the second-quarter earnings conference call but they did say that they lost a megacontract with a European bank of the magnitude of Citibank.
Andrew Jeffrey, senior analyst at Robertson Stephens Inc. in San Francisco, said customer delays may afflict other bank technology companies. Particularly among smaller banks and increasingly among bigger banks, as the environment gets more difficult, decision-making for spending on products that traditionally would have been viewed as nondiscretionary is increasingly being viewed as discretionary, he said.
Adam Holt, senior analyst at J.P. Morgan H&Q in San Francisco, said that Fundtech has had some pipeline management issues that have concerned us for close to a year now. Particularly, it has had problems executing sales, closing deals, and managing deal timing in a way that produces a reliable and consistent revenue stream, he said.
G.M. Stetter, Fundtechs new executive vice president of corporate marketing and strategic planning, said there is no question that managing the pipeline has been a challenge.
Until recently the company had been very much technology-driven, he said, but now its management is recognizing they need to have some business people here managing the sales process because there was not enough emphasis on the discipline of sales and marketing.
To that end, Fundtech has scrapped all but its core initiatives. For example, it has dropped a project announced in September to make its software available on hand-held devices, Mr. Stetter said.
Mr. Holt said Fundtech also has suffered because cash management technology has been a low priority for many banks, which have been hesitant to abandon their legacy payment systems to adopt Web-based ones.
Some potential bank customers have found ways to get around the limitations of their legacy systems, Mr. Stetter said, without committing money to a new system.