Online Resources Corp. is taking a less-is-more approach, consolidating many of the platforms bankers rely on after a series of poorly executed acquisitions gave it a hodgepodge of overlapping software.
The Chantilly, Va.-based technology vendor has already started combining some of its Internet banking and bill-payment platforms, which executives say should eliminate client confusion and help it better compete against larger rivals. Ultimately, the company expects to reduce its product roster to four from nine systems.
Online Resources is so confident in this strategy that its board of directors turned down several offers it received in January from unnamed suitors to do a deal, the company noted March 15 as it announced fourth-quarter earnings.
“They just felt that this was the right approach for the company, for the shareholders, to move forward with the strategy,” Joseph Cowan, Online Resources’ president and chief executive, said in an interview on March 16. He declined to discuss details for why the board turned down the offers.
Some analysts speculated the price potential suitors offered was too low but expect the company to remain a target in the future. Online Resources’ decision to go it alone–as well as a disappointing earnings outlook —led its shares to shares to plummet 36% to $3.90 in afternoon trading March 16 from the previous day’s close of $6.05.
Cowan took the helm of the company in June after several management shuffles and a bitter proxy battle with a hedge fund resulted in the replacement of several directors. He is matter-of-fact about the company’s previous errors, including a lack of emphasis on managing acquisitions and too much focus on building “shiny new objects” in hopes of discovering the next big thing.
“The real weakness in the company really comes back to a lack of focus,” Cowan said. “We had some acquisitions [and] the company didn’t do a lot to integrate those.”
“From an operations standpoint … we need to clean up the foundation,” Cowan added.
For example, the company is just completing the move of clients of Internet Transaction Services Inc., which Online Resources acquired in 2007, to another bill payment platform, William Newman 3d, Online Resources’ vice president of finance, said in an interview on Wednesday.
Consolidating products could help Online Resources use its investment dollars more efficiently, said Christine Barry, a research director with the Aite Group LLC research firm in Boston.
“It’s certainly a strategy that we’re seeing a lot of vendors taking right now,” Barry said.
Motivating customers to move from systems that are being phased out to surviving platforms is a challenge that can take longer than vendors expect, Barry said.
Online Resources reported fourth-quarter sales of $37.8 million, down 1.2% from a year earlier partly due to lower renewals of clients using only its bill payment software.
The company reported a net loss attributable to common stockholders of $2 million, or 6 cents per diluted share, compared with a net loss of $1.1 million, or 4 cents per diluted share, a year earlier.
It said it expects revenue in the first quarter of $38.2 million to $38.7 million and a net loss of 1 cent to 2 cents per share.
Thomas McCrohan, an analyst with Janney Montgomery Scott, downgraded the company’s shares to “neutral” from “buy” on March 16, citing in a research note its “uninspiring” outlook and decision to stay a standalone company.
John Kraft, an analyst with D.A. Davidson & Co., reiterated his “buy” rating of the company in a research note on Wednesday. He wrote the company is “in the early stages of a turnaround” that he predicts will result in a sale.
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