The Atlanta online bill payment giant CheckFree Corp. reported strong earnings and said it plans to focus more on offline payments.
Net income for the second fiscal quarter, which ended Dec. 31, rose 159% from a year earlier, to $33.8 million, CheckFree said Tuesday. Revenue rose 16%, to $215.9 million.
CheckFree also raised its earnings guidance for this fiscal year to between $1.19 and $1.24 a share, from earlier projections of $1.08 to $1.13. The guidance hike drove the stock up Thursday; by midday it had risen 18.93%, to $52.83 a share.
Pete Kight, CheckFree’s chairman and chief executive, said on a conference call with analysts that he is reshaping its business.
This month it bought PhoneCharge Inc., an Ansonia, Conn., provider of software that lets people make last-minute bill payments by phone, for $100 million in cash.
Like American Payment Systems Inc., the walk-in bill payment provider CheckFree bought in 2004, the PhoneCharge purchase is meant to “round out the electronic billing and payment infrastructure capabilities that the market wants from us,” Mr. Kight said.
He expects PhoneCharge will handle about 4 million payments this quarter and charges $2 a transaction.
“I clearly made a mistake six years ago when I looked at telephone bill payment and thought, ‘Obviously, Internet payments are going to replace telephone payments,’ ” he said. CheckFree has offered bill payments through the telephone for years, but “we did not choose to invest any further in the telephone bill payment business we were in.”
There has been “a surprisingly strong” number of people who consistently choose to pay a fee to pay their bills by phone at the last minute, Mr. Kight said. PhoneCharge is profitable, but its margins are lower than those of CheckFree’s other businesses, he said.
Revenue per transaction at CheckFree’s electronic payments business will take a hit this quarter when a contract with Microsoft Corp. that guarantees monthly minimum payments expires, he said. CheckFree, which will continue to process transactions for Microsoft under different terms, has been warning investors for some time about the guarantee loss.
The Microsoft contract is one of two CheckFree inherited in its 2000 purchase of Transpoint LLC, an electronic bill payment joint venture of Microsoft, First Data Corp., and Citigroup Inc. The other contract, with First Data, expired in August.
Though revenue per transaction will fall, he also expects transaction volume to increase during the quarter, in large part because of Wachovia Corp.’s conversion of its bill payment business to CheckFree from Metavante Corp., a unit of Marshall & Ilsley Corp. of Milwaukee.
Wachovia said it had 745,000 customers, including 362,000 active ones, paying their bills through Metavante at yearend. (The Charlotte company defines an “active” user as one who has paid a bill online in the previous 90 days.)
On Tuesday, CheckFree said it expects Wachovia to start shifting those customers to CheckFree’s system this quarter and complete the conversion next quarter.
Customers that signed up for bill payment or joined Wachovia after the conversion was announced in July 2004 were put on CheckFree’s system. At yearend Wachovia had 880,000 customers, including 308,000 active ones, using that system.
John Kraft, an analyst at D.A. Davidson & Co., said CheckFree’s results were better than he had expected. “The acquisitions look like they’ll be contributing more than we thought,” and the timeline for the Wachovia conversion was a welcome surprise.
CheckFree has been “very good about managing expectations,” and the market has overreacted to various concerns, such as the long-anticipated loss of the Microsoft and First Data contracts, he said. Despite this loss of revenue, “there’s no sign of any concern in the core bill payment business.”
The PhoneCharge acquisition was a smart one, because a significant number of people still prefer to pay their billers directly instead of using a bank’s Web site, Mr. Kraft said. By buying PhoneCharge, which works directly with billers, “the whole CheckFree story became a little bit safer because you have one less risk.”
