Electronic payment processor CheckFree (NASDAQ:CKFR) posted the first period of GAAP profitability in the company's history three months ago. Now, make that two and counting. The modest winning streak was extended yesterday with fourth-quarter earnings that swung to a gain of $11.4 million, or $0.12, versus a net loss of $17 million last year. Full-year earnings also turned the corner, rising to a $10.5 million profit from a loss of $52.2 million last year, on a 10% increase in revenues to $606.4 million.
Despite wiping the red ink off the books, shares are sliding more than 8% lower after near-term guidance failed to impress. As with Priceline (NASDAQ:PCLN) yesterday, investors reacted harshly to projections that came up short. First-quarter underlying earnings -- which exclude acquisition-related amortization and other one-time items -- are anticipated to fall in a $0.24-$0.26 range, shy of the $0.29 consensus estimate.
As the nation's leading electronic billing and payment processing company, CheckFree has teamed up with more than 1,300 banks, brokerage firms, web portals, and other organizations to provide electronic transaction processing services to more than 13 million people. Its platform enables consumers to conveniently pay bills online without the hassle and expense of postage or late fees. Last month the company addedWachovia (NYSE:WB) to its network alongside other industry heavyweights such as Bank of America (NYSE:BAC) and Yahoo (NASDAQ:YHOO).
CheckFree processed 165.2 million transactions last quarter, an 8% sequential improvement, and 45 million more than were handled in the same period the year before. The number of electronic bills delivered more than doubled from 11.5 million to 25.9 million. Processing and servicing revenues jumped 12.5% for the quarter and 11.4% for the year to $139.5 and $530.2 million, respectively.
Several months ago, CheckFree bought UIL Holding's (NYSE:UIL) American Payment Systems, in the process acquiring more than 10,000 retail bill-paying locations. The purchase of an in-person payment channel should complement the firm's core electronic operations nicely and is expected to add $14 million to fiscal 2005 revenues and be modestly accretive ($0.03-$0.04) to underlying earnings per share.
Management has reiterated a full-year outlook for a 20% improvement in underlying earnings per share to $1.26-$1.30 and quadrupling of GAAP earnings from $0.11 to between $0.39 and $0.45.
A few of the less obvious numbers, however, are equally noteworthy, such as gross margins that have increased from 41.2% to 59.3% over the last four years, free cash flow that jumped 11% last year to $147.8 million, and a steadily rising number of service providers that has grown from around 950 at this point last year to more than 1,300. Considering each new service provider ultimately leads to more subscribers, and hence, more transactions, this 38% increase should only accelerate volume growth going forward.
Fool contributor Nathan Slaughter has avoided no less than five late fees this year by paying his bills online -- but he owns none of the companies mentioned.
