HARDWARE/ SOFTWARE NOTES

Phoenix Rising

With Wall Street on Board, Orlando Firm Targets Bank Clients
By Danialle Weaver

It took a mere 18 months and a few million dollars for a team of programmers from an Orlando area banking software company to design - from scratch - an integrated client-server software package that could transform even the tiniest community bank into a financial powerhouse.

Now the biggest job ahead of 4-year-old Phoenix International Ltd. Inc. (Nasdaq: PHXX) , is winning over the hearts and minds of that strange breed of bird known as a banker, who remains quite skeptical that the client-server platform ever will be as good as the mainframe and mid-range computers that now dominate the banking landscape. But perhaps that's to be expected from an industry populated by folks whom Microsoft's Bill Gates once called "dinosaurs."

At last count, there were 7,600 financial institutions in the U.S. with assets of fewer than $100 million, 3,800 with assets from $100 million to $1 billion and 600 with assets over $1 billion. Fewer than 100 U.S. banks use client-server systems for their core data processing needs, although 22 of those banks - more than 20 percent - are using the Phoenix Retail Banking System (as are seven foreign banks).

That's one reason why Wall Street seems quite impressed. Phoenix (www.phoenixint.com) has been one of only a few companies that went public in the summer of 1996 to have consistently outperformed earnings estimates, according to both Motley Fool, the on-line investment forum, and Zack's Investment Survey. The company reported fourth-quarter earnings of 28 cents per share, "smoking" analysts' estimates of 22 cents per share, Fool reported in February.

Nor has Wall Street ignored the company's revenue and profit figures.

Net revenue for the year ended Dec. 31, 1996, totaled $10.4 million, more than double the $5 million reported in 1995. Net income rose from $554,000 in 1995 to $2.2 million in 1996, and earnings per share rose from 17 cents in 1995 to 59 cents in 1996. Going into 1997, the company had a backlog of $6.8 million, most of which is revenue from five-year software support agreements.

Since its IPO, Phoenix has seen its stock price double to $24 per share as of early April. That's 100 percent growth in a market that has not of late looked favorably upon technology stocks.

The future looks even rosier: Robert V. Bolen of the Nashville investment bank J.C. Bradford & Co., which underwrote Phoenix's 1996 IPO along with Advest Inc., of Hartford, Conn., expects 1997 revenues of about $19.1 million and earnings per share to jump to about 95 cents.

"Phoenix has a full-fledged, all-encompassing product - not just a couple of modules, but everything you need to run a bank," says Bolen. "What attracted us was senior management - Bahram came off to us as seasoned and savvy, and his background was a breath of fresh air compared to so many of the current IPOs, who have young, sharp, bright - but unproven - talent."

Bahram Yusefzadeh, 50, was born in Iran and came to the United States in 1963. In 1969, he started Nu-Comp Systems Inc., a St. Paul, Minn.-based company that developed the well-regarded Liberty banking system, an integrated banking package.

In June 1986, Nu-Comp was acquired by Charlotte-based Broadway & Seymour. Yusefzadeh stuck around until November 1986, when he joined Orlando-based Kirchman Corp., where he remained until 1992. In January 1993, he started Phoenix, which is named for the legendary, many-lived Egyptian bird that threw itself into the fire and then rose, in youthful freshness, from its own ashes.

"The banking industry has gone through as much or more change in the last 10 to 15 years as it has in its entire history," says Yusefzadeh. "Yet all the products on the market were originally designed and built in the late 1960s and early 1970s, when the technology and the environment were totally different."

Phoenix, which recently moved into its new headquarters building in Heathrow, was among the first banking software companies to write code for client-server systems. The centerpiece is the "relationship information management" module, which Yusefzadeh calls "customer-centered, relationship management-focused software." It is designed to show a given customer's entire "relationship" with a bank with a few mouse clicks - what products, such as checking or savings accounts, the customers have as well as what products or services they are likely to buy in the future. Those include insurance, credit cards, money market funds or brokerage services.

The system also supports core bank data functions such as system administration, nightly processing and holding company accounting as well a general ledger system and reconciling on-line transactions. It allows bank executives to track the bank's performance among peers and allows them to play "what-if," modeling the effects of business strategies and changes in market conditions on the bank's operations. It uses standard TCP/IP communications protocols to support a broad array of local and wide-area networks. Software support is provided via telephone, Internet, electronic mail and facsimile.

Phoenix's software also has been designed to be used internationally. It will work in different languages and with different currencies, and the package has been rewritten to comply with various local tax computations and differing regulatory requirements. In fact, more than half the company's sales in 1996 came from international markets. The company opened a sales office in London in 1996. Unisys is now the company's exclusive distributor in Latin America and the Caribbean, while a Nigerian technology company is exclusive distributor for the Phoenix system in Africa.

This year, Phoenix, which employs about 140, plans to enhance its product to provide on-line banking services through the Internet and hopes to introduce new versions of the software for Windows 95 and Windows NT Workstation. The release of the Windows NT version in early 1997 is expected to further pump up revenue.

The license and support fees for the Windows version will be in line with those charged for the earlier versions, which range from $350,000 for small banks to more than $1 million for larger banks, excluding hardware. International clients pay 10 percent to 15 percent more.

Phoenix has moved aggressively to market its software. In March, it struck an alliance with Atlanta-based USBA Holdings Co., which provides consulting services to banks. USBA will promote the Phoenix system to its 500-plus clients across the nation.

Still, Phoenix has yet to win over a major bank. Its largest client is Suffolk County National Bank on Long Island, which has assets of about $800 million. Other customers include Advest Bank in Hartford, Conn.; Humboldt Bank in Eureka, Calif.; and First State Bank of St. Charles, Mo.

The company's primary competitors in the U.S. client-server arena include EastPoint Technology Inc., a Marshall & Isley Corp. subsidiary based in Bedford, N.H., and Perot Systems of Dallas. Another Dallas company, Hogan Systems, has been known as a producer of mainframe banking software but recently opened a division in Orlando to develop client-server packages, too.