Two more of the companies discussed in our recent online-banking roundup reported earnings this week: large bank software provider Corillian (NASDAQ:CORI) and small bank provider Digital Insight (NASDAQ:DGIN). Of the two, Digital Insight's shareholders are wearing the bigger grins this morning, after seeing their shares rise 15% in value yesterday. Wall Street was less enthusiastic over Corillian's report that it hit only the low end of its revenue and earnings guidance for the quarter. Those shares were off 4% in after-hours trading.
One word sums up Digital Insight's report: "fantastic." In Q1 2005, the company grew its revenues by 13% in comparison with the year-ago quarter. What's more, the company's light business model enabled it to grow net profits by 38%, and some well-planned stock buybacks boosted profits per diluted share by 45%.
As if that were not enough, the company's $5.7 million in GAAP-reported profits understated its true cash profitability by more than half. A back-of-the-envelope calculation of Digital Insight's free cash flow reveals that over the past three months, the company generated $13.8 million in cash. And while that's just a 29% increase over the year-ago number, slower than GAAP earnings growth, I suspect that shareholders will forgive the small discrepancy in exchange for twice as much cash.
Basing a run-rate on the $13.8 million number, it's conceivable that Digital Insight could generate more than $50 million in free cash flow over the course of this year. If that proves to be the case, then with its current $650 million enterprise value, the market is valuing Digital Insight at just 13 times forward free cash flow. For a company growing at 20%-30% per year, that's simply a steal of a price.
Turning to Corillian, the picture is less clear. Unlike Digital Insight, Corillian did not provide a statement of free cash flow with its earnings release. However, using GAAP profits as a proxy for free cash flow, it seems unlikely that the company generated more than $1 million in cash this quarter. Granted, that was in line with guidance. Also granted, the company has advised on more than one occasion that its revenues and profits will improve materially in the second half of the year. Nonetheless, coming hard on the heels of superb results from Digital Insight and, last week, Online Resources (NASDAQ:ORCC), it's understandable that Corillian's numbers underwhelmed Wall Street.
Corillian's prospects for profits later this year do appear bright, and news that the company's bank fraud detection system is gaining traction with clients -- highlighted by an announced adoption of the system by banking heavyweight Citigroup -- also holds promise. But for now, investors appear to be adopting a "trust but verify" stance on Corillian.
For more Foolish news and views on companies in this sector, read:
- Rob Banks the Easy Way
- Online Resources Strikes Gold
- Banking on a Bargain
- Corillian Fishes for Phishers
Fool contributor Rich Smith owns shares of Corillian, but of no other companies mentioned in this article. The Motley Fool has a disclosure policy.
