CheckFree Reports Record Earnings and Revenues for the Third Quarter of Fiscal 1999
(Last updated 5:42 PM ET April 27)
Company delivers a 20% increase in revenues over the third quarter of fiscal 1998, and Earnings Per Share of four cents --
Consumers can now receive 21 bills electronically at more than 20 distribution points --
ATLANTA, April 27 /PRNewswire/ -- CheckFree Holdings Corporation (NASDAQ:CKFR) today announced revenues of $62.9 million for the third quarter of fiscal 1999 ended March 31, 1999. Total revenues for the quarter increased 20 percent over the comparative quarter of last year, adjusted for the effects of software divestitures completed last year.
Excluding the effects of a $2.2 million charge for in-process research and development at Mobius Group, acquired in March, and a one-time real estate transaction in the Investment Services division, the Company reported a profit for the quarter of just over $2 million, or four cents per diluted share, compared to an effective break-even result for the same period last year.
The number of subscribers to the Company's electronic billing and payment (EBP) services grew by six percent over the prior quarter, equating to more than 2.8 million subscribers and driving an average of more than 11 million transactions processed per month. The Company noted that financial institutions are experiencing, on average, Internet-based sequential quarterly subscriber growth above 20 percent. By contrast, they are experiencing Personal Financial Management software-based sequential quarterly subscriber growth below four percent.
"Our subscriber growth numbers this quarter clearly indicate that consumers want to use Internet-based electronic billing and payment services, and will sign up for them at impressive rates when they are offered and promoted," said Pete Kight, Chairman and CEO of CheckFree. Kight also noted that, with the launch of Internet-based EBP services through Bank One on April 14, consumers can now receive and pay electronic bills at more than 20 sponsor sites, including First Union, Bank One, Quicken, Charles Schwab, Prudential, Morgan Stanley Dean Witter and Navy Federal Credit Union. Consumers can also pay bills at more than 350 financial institution sites using CheckFree services.
Company Extends Lead in Electronic Billing and Payment
The Company said that during the quarter it signed contracts for electronic billing and payment solutions with eight additional billers, bringing to 49 the total number of billers that have signed EBP contracts with CheckFree.
"Significant third quarter contract signings with telecommunications companies added to our historical success in that industry, giving CheckFree the potential to manage the electronic distribution and payment of 70 percent of all telecommunications bills in the United States," said Kight. In addition to these new signings, AT&T has contracted to use CheckFree's EBP services, and on February 24, MCI WorldCom made its more than 20 million consumer bills available for electronic billing and payment through CheckFree.
Among the contracts signed during the third quarter were: Cox Communications, one of the largest cable companies in the United States, mailing nearly four million bills per month; CountryWide Home Loans, the nation's largest independent mortgage lender; Illinois Power, an electric and gas utility serving approximately 650,000 customers; Nevada Power, an electric energy and services company reaching 550,000 customers; and billserve.com, an EBP service bureau and consolidator that provides small- to medium-sized billers with a turn-key bill presentment and payment solution.
Update on Distribution Through Internet Portals, Intuit Disagreement
Kight noted that the Company's plans to distribute its EBP services through a "high-traffic Internet aggregation site" on the Internet continue on track, and have not been affected by the Company's disagreement with Intuit, which led Intuit to file a lawsuit against CheckFree in March. "The project is on track, with no impact on design, development, testing or market introduction plans coming from our disagreement with Intuit," Kight said.
Regarding the Company's disagreement with Intuit, Kight said, "The matter has moved to arbitration, and we expect a fairly quick resolution. This is a new and rapidly evolving business, and it shouldn't be surprising that parties sometimes have to struggle to adapt relationships to new conditions. Nonetheless, Intuit and CheckFree have successfully worked together, blending our complementary strengths, for many years, and we expect to work this out."
EC Solutions Professional Services Group Launched
CheckFree Chief Operating Officer Pete Sinisgalli said that the Company is focusing on moving the billers through the contract-to-live-service cycle as quickly as possible.
"To date, we have signed EBP contracts with 49 billers, 21 of which are offering electronic billing and payment to their customers today. An additional 19 are actively engaged in the implementation process, and the remaining 9 are in queue to begin implementation. Additionally, our pipeline for new biller signings has never been stronger, and interest from organizations wanting to provide consumer access to EBP services is high.
"A core part of our market strategy is to get these parties into market with EBP solutions as quickly as possible," Sinisgalli continued. "Our experience has shown that once people use the service, and discover the convenience of not only being able to receive bills electronically, but to make any payment to anyone electronically, they love the service and stick with it. Our EC Solutions unit will focus on providing consulting and other strategic services that help billers and sponsors introduce EBP quickly to achieve these first-to-market advantages," Sinisgalli concluded.
Divisions Perform As Expected
CheckFree's Electronic Commerce division reported revenue of $43.5 million for the quarter, 21 percent growth over the same quarter of fiscal 1998. The division posted an operating profit of $1.5 million, compared to a profit of $800,000 for the same period last year. The number of people subscribing to electronic billing and payment services offered by the division exceeded 2.8 million, a 6 percent increase over the prior quarter.
CheckFree Investment Services reported revenue of $9.7 million for the third quarter of fiscal 1999, a 23 percent increase over the same quarter last year, after adjusting for the acquisition of Mobius Group. Operating income, adjusted for the effects of charges associated with in-process research and development related to the Mobius acquisition, and a one-time real estate transaction, was $2.7 million for the quarter, a 61% increase over Q3 1998. The division grew the number of portfolios under its management to 630,000, up 10 percent over the previous quarter and more than 41 percent over the same quarter of fiscal 1998.
The Company's Software division reported revenue in the quarter of $9.8 million, an increase of 8 percent over the roughly $9.0 million generated by these same businesses in the third quarter of fiscal 1998. Operating income was $3.8 million for the quarter, an increase of 63% over last year's adjusted third quarter result. The division extended its ACH Alliances Services business -- through which CheckFree provides ACH process management resources to customers on their sites -- to another top 10 bank, and its reconciliation products group closed important sales in the banking sector, including M&I and Washington Mutual.
Fourth Quarter Expectations
Commenting on the Company's expectations for the fourth quarter, Sinisgalli said, "We expect to finalize agreements soon that will expand Internet distribution of CheckFree's EBP technology, as well as the availability of our partner banks' on-line banking services. We intend to be fully prepared to invest in our service delivery infrastructure to support this expanded distribution.
"The success we have had signing billers to EBP contracts has led us to an enviable challenge: Many billers are eager to offer electronic billing and payment to their consumers as quickly as possible, and are asking for a greater amount of help from us in this process. Meeting these requests probably will require us to increase our investment in resources we acquire from third parties, including software and development tools.
"We will be quite profitable in fiscal Q4, but are now most comfortable with analyst EPS projections in the low end of the range, namely five cents per diluted share. This reflects our full commitment to invest to maximize the opportunities of our EC division, one cent of accounting dilution from the Mobius acquisition, and risk in our software business stemming from the Y2K impact on new sales.
"We certainly could reduce costs in Q4 to achieve higher EPS -- keep in mind that 1 cent of EPS equals only about a half million dollars. However, cutting costs in our EC division would be a mistake," Sinisgalli concluded.
Commenting on CheckFree's commitment to investing in market growth and leadership, Kight said, "Three things are critical to leading this market: the widest consumer distribution possible, through both bank and Internet distribution channels; high-percentage penetration of the largest billing categories, such as telecommunications; and an integrated electronic billing and payment platform that enables distribution, tracking, audit, payment, and customer care in highly efficient form. CheckFree is focused on continuing to lead in all three categories."
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