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S1 posts another huge loss, lowers 2001 targets

The financial services software developer misses analysts' reduced estimates in its fourth quarter, posting a staggering net loss of $813.4 million.

S1 missed analysts' reduced estimates in its fourth quarter Tuesday, posting a staggering net loss of $813.4 million, or $14.45 a share, on sales of $60.1 million. It also slashed its sales estimates for the first quarter and fiscal 2001.

S1, which develops software for financial services firms, warned last month that it would post a net loss of between $318 million and $371 million in the quarter on sales of between $60 million and $65 million.

First Call consensus pegged S1 for a loss of $3.54 a share on sales of $62.9 million. However, it's unclear whether this estimate was adjusted following the Jan. 18 warning.

S1 shares closed off 94 cents to $6.94 ahead of the earnings report before falling to $6.13 in after-hours trading.

During a conference call with analysts, Chief Executive Officer Jaime Ellertson reiterated his commitment to S1's revamped business model despite the enormous losses it reported in the fourth quarter and fiscal 2000.

"This company has enormous potential in the e-finance space," he said. "We're committed to delivering the compelling e-finance experience."

Right now, it would seem S1 shareholders would settle for anything but another quarter like its most recent.

The $60.1 million in sales marks a 49 percent improvement from the year-ago quarter when it lost $117 million, or $3.05 a share, on sales of $40.4 million.

In the quarter, S1 posted a loss before interest, taxes, depreciation and amortization--known as EBITDA, and used as a measure of the company's cash flow--of $27.9 million, or 50 cents a share.

Software license sales slipped 9 percent from the year-ago quarter to $11.1 million. Professional services sales rose 77 percent from the year-ago period to $40.6 million, and data center sales rose 156 percent to $8.2 million.

However, gross profit margins fell to 38 percent, down from 46 percent in the year-ago quarter.

The huge net loss was primarily a result of several one-time charges including:

• a $778.4 million charge related to the impairment of certain acquisition-related intangibles.
• a $6 million charge related to the discontinuation of its Edify Retail Banking platform.
• a $3 million charge for the consolidation of technology platforms and worldwide systems.
• a $2 million charge related to the merger of VerticalOne, one of its subsidiaries, with Yodlee.
• another $1.5 million for the opening of a new data center.
• as well as $1.5 million for "miscellaneous changes in organizational structure," including the hiring of a new chief financial officer and other senior executives.

The company exited the quarter with $172 million in cash and short-term investments.

Looking ahead, Chief Financial Officer Robert Stockwell told analyst to expect sales of between $60 million and $63 million in the first quarter, below First Call's estimate of $68.6 million.

Sales for the fiscal year are expected to fall between $275 million and $285 million, well below analysts' estimates of $311.6 million.

On the bright side, Stockwell said the company still plans to reach profitability on an EBITDA basis by the end of the fiscal year.

Last quarter, S1 missed analysts' estimates when it posted a loss of $136.1 million, or $2.46 a share, on sales of $64.4 million.

The stock stormed up to an all-time high of $142.25 last February before crashing to a low of $4.63 in January.

Sixteen of the 21 analysts tracking the stock rate it either a "buy" or "strong buy."