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Revenue Up, Net Off At Open Solutions Deluxe Says Profits Dropped by a Third Demand Gives Boost To Digital Insight
Revenue Up, Net Off At Open Solutions
Profits at Open Solutions Inc. of Glastonbury, Conn., slipped in the third quarter, as expected, even though its revenue was up.
The core processing software and outsourcing company announced Wednesday that third-quarter earnings fell 14% from a year earlier, to $3.8 million, while revenue jumped 74%, to $49.2 million.
Earnings per share of 18 cents matched analysts' average estimate. The company warned investors last week that it would report lower earnings. One reason, it said, was that higher sales had brought higher software implementation costs and bonus commissions. Another was its decision to invest more in research and development in the quarter.
In an earnings call with analysts, chairman and chief executive Louis Hernandez said the higher costs were a sign of strength. Banks are switching to Open Solutions' core systems faster than had been expected, he said, and it has lost fewer customers of acquired companies than it had expected.
It reported 16 third-quarter sales of its core systems - "evidence of a wholesale shift away from legacy platforms," Mr. Hernandez said. Asked how many of the buyers had been customers of the newly acquired companies, he said only: "The demand for the product is exceedingly strong right now."
Mr. Hernandez said that plans are on track to buy Bisys Group Inc.'s bank outsourcing business by yearend. The $470 million cash deal, announced last month, would double Open Solutions' revenue and make it the No. 5 provider of core processing to banks and credit unions.
He gave no new details of the deal, such as of the financing, but he said Bisys' strong cash flow would be used to pay down the debt quickly. "When we close the financing, we'll give you all the specifics," he said.
Open Solutions has grown rapidly through acquisitions, including six in core processing. It has typically tried to convert the acquired companies' customers to its own technology, which is built on a relational database from Oracle Corp.
Christopher F. Penny, an analyst at Friedman, Billings, Ramsey who rates Open Solutions' stock "outperform," said the company's strategy is like "drinking through the fire hose."
"With 16 core deals signed in the quarter, the closing of the Bisys transaction coming, reselling agreements in Canada, India, and China starting in 2006, and all the implementations they have, it's a wonder that anyone gets any sleep," Mr. Penny wrote in a note sent to clients on Thursday.
That is both a risk and a strength, he wrote. "Open has been very busy deploying capital. Now they need to execute and show that returns on capital are what we think they could be."
Deluxe Says Profits Dropped by a Third
Profits tumbled in the third quarter for Deluxe Corp., the No. 1 check printer, because of pricing pressure from banks and the loss of a major customer.
The St. Paul company said Thursday that net income was $37 million, or 73 cents per share, down 36.2% from the same quarter last year. Revenue was $413 million, down 12.5%.
Much of the decline was in its check-printing business, in which operating income dropped 28.4%, to $126 million. Falling demand for checks led to lower prices, the company said. Late last year Deluxe lost a large check customer, which it did not name, and reported having received an $8 million contract-termination fee in last year's third quarter.
Deluxe also reduced its full-year guidance Thursday. Earlier it said earnings would be $3.30 per share, but now it predicts $3.17 to $3.21.
Demand Gives Boost To Digital Insight
The online banking technology vendor Digital Insight Corp. reported higher third-quarter earnings and more demand for its services by banks' customers.
The Calabasas, Calif., company reported revenue of $53.2 million Tuesday, up 12% from a year earlier. Net income was $6.8 million, up 65%.
"The fourth quarter is shaping up to be equally strong, if not stronger," said Jeff Stiefler, its chairman, president, and chief executive, in a conference call Tuesday.
In the third quarter Digital Insight's customers enrolled 132,000 new bill-payment users, 11% more than in the second quarter - "a new record for bill-pay growth," Mr. Stiefler said. It also added 248,000 online banking users, up 4%.
Digital Insight expects to add 130,000 Internet banking end users in early 2006 through three contracts it signed last quarter with financial institutions with more than $1 billion of assets each.
