BILL.L Regulatory News (BILL)

6 Mar 2006 07:02

Billing Services Group Limited06 March 2006 For immediate release 6 March 2006 Billing Services Group Limited ("BSG", the "Group" or the "Company") Preliminary results for the year ended 31 December 2005 Billing Services Group Limited, one of the world's leading providers ofclearing, settlement, payment and financial risk management solutions to thetelecommunications industry, today announces its audited results for the twelvemonths ended 31 December 2005. Financial Highlights •Turnover increased by 11% to $157.3 million (2004: $141.3 million) •EBITDA increased by 36% to $41.3 million (2004: $30.3 million) •Cash Net Income increased by 43% to $20.4 million and by 24% to $0.098 per share (2004: $14.3 million and $0.079 per share) •Raised approximately £140 million of capital through two public equity offerings, approximately 58% of which related to shares sold by pre-IPO institutional investors •Raised approximately $80 million of capital through additional long-term debt Operational Highlights •Successful AIM flotation in June 2005 valuing BSG at approximately £136 million • Acquired EDS Interoperator Services GmbH for €148 million in cash in August 2005 •On 15 December 2005 BSG agreed to purchase United Clearing Plc in a share for share deal worth approximately £23 million, which was declared unconditional in all aspects on 3 March 2006 •Signed framing agreement with T-Mobile for international roaming clearing services for all European affiliates of T-Mobile •Formed the "Click & Buy" joint venture with Webpay International providing content payment and micro-payment solutions to the US market •Signed a strategic partnership with China Mobile's ARCH (Advanced Roaming Clearing House) identifying five areas of cooperation and teaming between the companies Commenting on the preliminary results Patrick J Haynes III, Chief ExecutiveOfficer of BSG, said: "2005 was a remarkable year for the Company. Not only did we complete a verysuccessful AIM flotation, but we also acquired EDS Interoperator Services GmbHand we are in the process of concluding the acquisition of United Clearing Plc.As we look to expand our product portfolio and address the needs of a convergingmarket place, we find ourselves ideally positioned for long term growth." EnquiriesBilling Services Group Ltd Tel: +1 847 832 0077Patrick J. Haynes III, Chief ExecutiveNorman M. Phipps, Chief Financial OfficerBuchanan Communications Tel: +44 (0)20 7466 5000Jeremy Garcia / James Strong Billing Services Group Limited Preliminary results for the year ended 31 December 2005 Chief Executive's Statement 2005 was a memorable year for BSG. We generated $41.3 million of EBITDA,completed an initial public offering on the AIM market, refinanced our debt andmade a strategically significant acquisition. Our financial results reflectmanagement's opportunistic mindset and the increasing scope of our value addedservices which are critical to the telecommunications industry. For the year ended 2005, revenue increased by 11% to $157.3 million. Our revenuereflected the operations of EDS Interoperator Services GmbH, which we renamedBSG Clearing Solutions GmbH ("BSG Germany"), from its acquisition date of 15August 2005. North American revenue increased by 3.3% during 2005. In North America, we were successful in reducing overhead costs. Excluding theeffect of the acquisition of BSG Germany and non-cash expenses, the Group'ssales, general and administrative expenses decreased by $7.2 million or 23% to$24.1 million. Most recently, we have been successful in receiving competing terms, on a firmunderwritten basis, for a credit facility of up to $260 million to refinance ourexisting debt and provide revolving credit borrowing capacity. The creditfacility also contemplates an incremental $50 million of availability for futureacquisitions, expected to be uncommitted at closing. We expect that theeffective interest rate under the new borrowing facilities will be materiallylower than our current facilities weighted average interest rate. We hope toconsummate the refinancing within the next 60 days. Perhaps the most pivotal event of 2005, however, was the successful initialpublic offering in June 2005, which was followed by a second equity offering inAugust 2005. Our initial public offering allowed us to provide a successful exitfor ABRY Partners, our pre-IPO private equity investor, and the equity offeringin August provided a portion of the capital necessary to acquire BSG Germany.The acquisition of BSG Germany has enabled us to diversify our revenue base intowireless clearing, complementing our North American operations which haveprimarily provided services to the wireline industry. In August, as part of our strategic focus to enable next generation commerce ona global scale, we established the "Click & Buy" joint venture with WebpayInternational. In addition to a 49% participation in all merchant paymentprocessing revenues collected, we will provide LEC billing and credit cardprocessing services. The joint venture already has already enrolled 50,000subscribers in the United States. This past September, we signed a strategic partnership with China Mobile's ARCH.This co-operative initiative is the first of its kind, combining thecompetencies and skill sets of two highly prominent organizations for the clearbenefit of clients. Acquisition of United Clearing PLC On 15 December 2005, we announced our intention to purchase 100% of theoutstanding stock of United Clearing Plc in a share-for-share exchange. UnitedClearing provides settlement services to wireless carriers. Its services arecomplementary to the clearinghouse services of BSG Germany, allowing us torealize operational synergies and broaden our portfolio of services to theglobal mobile telecommunications industry. I am pleased to report that theowners of 72% of the United Clearing shares have committed to exchange theirshares, and the offer was declared unconditional in all aspects on 3 March 2006. We have already begun integration and cross selling initiatives. United Clearingbrings over 70 additional customers to our client base and over 20 NorthAmerican contracts. This ideally positions BSG to achieve its mission foraggressive penetration into the North American market place. The acquisitionalso makes BSG a world leader in settlement for the telecommunications industry. Current Trading and Prospects The Group's results reflect a sound business model and our aggressive strategyto expand the scope and geographic breadth of our service offerings. Our NorthAmerican business has gained customers, reduced costs and increased earningscontribution. The August 2005 acquisition of EDS Interoperator Services GmbHrepresented a key strategic move for the Group. The acquisition of UnitedClearing Plc expands our suite of mission-critical services to thetelecommunications industry, and we are optimistic about United Clearing'scontribution to the Group in 2006. As a leader in the market for third party clearing and settlement services, weremain committed to rapidly developing our technological solutions and meetingcustomer demands. We are continuously enhancing payment delivery solutions andfocusing on new products to ensure we remain a powerful force in the industry. Our initiatives include the following: •Wireless data clearing services. We are targeting the North America wireless market with an initiative to offer wireless data clearing services. •Credit card payment gateway. Currently, we provide wireline clearinghouse services to 450 customers in North America, most of whom offer a credit card payment option to their customers. We will initially target our existing customers for their credit card settlement needs. •E-Payment platform. In cooperation with two Tier One carriers, we are developing a platform enabling them to clear and settle IP services and e-payments for digital content within a phone bill. As a result of our programs, planning and initiatives, trading in the year todate is in line with our expectations. As previously announced, at the time of the interim results on 30 September2005, the Board stated that given the size and global breadth of the business,it may consider a move to the Official List of the London Stock Exchange during2006. The Board continues to believe that such a move would be in the bestinterests of the Company. It will attract new investors, lead to an increase inmarket coverage generally and lead to an improvement in liquidity for thebenefit of all shareholders. Together with our advisers, we have commenced discussions with the UKLA toconfirm the timing and process for such a move. A further announcement will bemade in due course. The success and sustainable growth we achieved in this past year, demonstratesour commitment to building shareholder value. We will continue our strategy oforganic growth coupled with strategically complementary acquisitions. Billing Services Group Limited Financial Review of the Twelve Months Ended 31 December 2005 It should be noted that results for the twelve months ended 31 December 2005include the results of BSG's predecessor company, Billing Services Group, LLC,which was the ultimate holding company for all business units before theformation of Billing Services Group Limited on 15 June 2005. Additionally, theresults for the twelve months ended 31 December 2005 include four and one-halfmonths of operations of BSG Germany, which was acquired on 15 August 2005. BSG's financial statements are prepared in accordance with generally acceptableaccounting principles in the United States ("US GAAP"). The financial statementsincluded herein should be read in conjunction with the Notes incorporated in theaudited financial statements. Statement Summary Revenues. BSG's revenues are derived from its North American wireline businessand from its European mobile roaming clearing business. North American revenueis derived primarily from fees charged to wireline long distance providers fordata clearing, financial settlement, information management, payment andfinancial risk management and customer service functions. European revenuelargely consists of fees charged to wireless carriers for clearinghouse servicesrelated to international roaming charges. Cost of Services and Gross Profit. BSG's cost of services for its North Americanwireline business primarily includes fees charged by LECs for billing andcollection services. Such fees are assessed for each record submitted and foreach bill rendered to end-user customers. BSG charges its customers a negotiatedfee for LEC services. Accordingly, gross profit generated by the North Americabusiness is generally a function of processing fees charged per message and anydifferential between the LEC fees charged by BSG and the related LEC cost ofservice. There is no material cost of services associated with revenues from theGroup's European business. Cash Operating Expenses. Cash operating expenses are comprised of all selling,marketing, customer service, facilities and administrative costs (includingpayroll and related expenses) incurred in support of operations and settledthrough the payment of cash. Depreciation and Amortization. Depreciation expense applies to certain softwaredevelopment, furniture and fixtures, telecommunications and computer equipment.Amortization expense relates to definite-lived intangible assets recorded thatare amortized in accordance with SFAS No. 142 "Goodwill and Other IntangibleAssets" under US GAAP. These assets consist primarily of contracts with LECs andcustomers, and software and trademarks, all of which are amortized over theirrespective useful lives. Amortization expense also includes deferred financingfees, which are amortized over the term of the related loans. Adjusted Net Income. Adjusted Net Income is determined by adding the followingto net income (loss): provision for income taxes, amortization of intangiblesrecorded in purchase accounting and the write-off of deferred financing feesupon the repayment of the related debt. The amount so computed is furtheradjusted for a provision for income taxes on each of the adjusting items at anassumed long-term rate of 35% (refer to calculation presented in the financialtables herein). Although Adjusted Net Income is not a measurement under GAAP, webelieve it is a useful measure for investors to compare our performance to thatof other companies on a consistent basis without regard to certain items whichdo not directly affect our ongoing operating performance or cash flows.Nonetheless, it should not be considered in isolation or as a substitute for netincome or cash flow information prepared in accordance with US GAAP. Cash Net Income. Cash Net Income is determined by adding the cash benefit oftax-deductible goodwill to Adjusted Net Income (refer to calculation presentedin the financial tables herein). While it is not amortized for GAAP purposes,goodwill amortization is deductible in calculating our taxable income and hencereduces cash tax liabilities. Although Cash Net Income is not a measurementunder GAAP, we believe it is a useful measure for investors to compare ourperformance to that of other companies on a consistent basis without regard tocertain items which do not directly affect our ongoing operating performance orcash flows. Nonetheless, it should not be considered in isolation or as asubstitute for net income or cash flow information prepared in accordance withUS GAAP. Comparison of Results for Year Ended 31 December 2005 to Year Ended 31 December2004 Total Revenue. Total revenue of $157.3 million in 2005 increased by $16.0million, or 11%, compared to 2004. The increase in revenue was primarily relatedto the inclusion of $11.3 million of revenue from BSG Germany for the periodsince acquisition, the inclusion of a full year of revenue under a contract witha large North American customer whose billing arrangements commenced inSeptember 2004 and increases in LEC fees charged to North American customers. Cost of Services and Gross Profit. North American cost of services of $88.7million during 2005 increased by $8.9 million, or 11%, compared to 2004. Theincrease in cost of services is primarily due to the increase in revenueattributable to LEC rate increases. The Company's gross profit margin in 2005was 43.6%, compared to 43.5% in 2004. The 0.1 percentage point increase inmargin resulted from the addition of 100% margin business from BSG Germanyoffset by reduction in margin in North America as the result of certain billingarrangements with the business unit's largest customer. Cash Operating Expenses. Cash operating expenses of $27.3 million in 2005 were$3.9 million, or 13%, lower than in 2004. The decline in expenses was largelyattributable to a $7.2 million reduction in North American expenses resultingfrom a consolidation of operations completed in late 2004, a favorablerenegotiation of outsourced call center services and personnel reductions,offset by $3.2 million of expenses attributable to BSG Germany in 2005. Depreciation and Amortization Expense. Depreciation and amortization expense in2005 increased by $3.3 million, or 27%, compared to the same period in 2004. Theincrease was primarily due to the inclusion of $6.0 million of amortizationexpense by BSG Germany, offset by a $1.8 million reduction in depreciation inNorth America due principally to a decrease in assets following closure of afacility during 2004 and a $0.8 million decline in amortization relating toNorth American customer contracts. Goodwill was not amortized in either periodin accordance with SFAS No. 142. Adjusted Net Income. Adjusted Net Income in 2005 was $18.3 million ($0.088 pershare), compared to $13.4 million ($0.075 per share) in 2004. The increaseresulted largely from an increase in amortization of BSG Germany's intangibleassets recorded in purchase accounting and the write-off of deferred financingcosts associated with refinanced debt. Cash Net Income. Cash Net Income in 2005 was $20.4 million ($0.098 per share),compared to $14.3 million ($0.079 per share) in 2004. The increase resultedlargely from the increase in Adjusted Net Income and tax benefits available fromtax deductible goodwill of BSG Germany. New Debt Facilities and Compliance. In April 2005, the Company borrowed $140million under new first and second lien term loans. Funds received from the newloans were used to repay $68.4 million of previously outstanding senior andsubordinated debt and to make a $71.3 million dividend distribution. BetweenAugust 2005 and December 2005, the Company borrowed $79.5 million of long-termsenior and subordinated debt for use in funding the acquisition of BSG Germany.The Company was at all times in compliance with all covenants of the new creditagreements. Changes in Working Capital. BSG's cash balance at 31 December 2005 was $50.3million, compared to $76.3 million at 31 December 2004. The $26.0 milliondecline was primarily attributable to a reduction in third-party accountspayable in North America, which fell by $30.1 million. Fluctuations in dailycash balances and third-party accounts payable are normal due to the variabilityof funds collected from LECs and processed on a daily basis. In the NorthAmerican business unit, funds are received daily from LECs but most of suchfunds are ordinarily disbursed to customers only once each week. The Company's working capital position (net of funded debt) at 31 December 2005was negative $3.4 million compared to negative $10.6 million at 31 December2004. The $7.2 million increase in working capital was principally the result ofthe acquisition of BSG Germany. The Company can operate with a negative workingcapital position, because a significant portion of its current liabilities wouldrequire payment over time, typically over an 18-month period, only if NorthAmerican customers were to significantly reduce the volume of business done withthe Company or terminate their relationships. The Company has not historicallyexperienced any material loss of customers in any one year. Capital Expenditures. During 2005, the Company incurred capital expenditures of$13.0 million, including ongoing software development, purchases oftelecommunications and computer equipment and capitalized interest. Cash Flow for the Year Ended 31 December 2005 Cash flow from operating activities. Net cash used in operating activities was$4.1 million during 2005. Net cash used in operating activities was principallyattributable to a $30.1 million decrease in payables to customers and a $6.6million decrease in accrued liabilities, offset in part by $15.6 million ofdepreciation and amortization, $5.1 million of net income, $4.2 million ofamortization of deferred finance costs, a $4.1 million reduction in accountsreceivable and a $3.3 million increase in deferred taxes. Cash flow from investing activities. Cash used in investing activities was$165.5 million during 2005. Net cash used in investing activities principallyincluded $154.8 million to purchase BSG Germany and $13.0 million of capitalexpenditures, offset by a $3.7 million reduction in purchased receivables. Cash flow from financing activities. Cash provided by financing activities was$143.7 million during 2005. The Group borrowed $219.5 million under new creditfacilities and raised $97.0 million through sales of common stock. Such fundswere used to make a $71.3 million dividend distribution, repay $68.4 million inrefinanced debt and pay $12.8 million in deferred financing fees, $12.4 millionin net deferred purchase price to the former owner of BSG Germany and $7.8million of scheduled principal payments under its new debt agreements. **************************** A copy of this statement is being sent to all shareholders and copies areavailable from BSG's Nominated Advisor at the address below: Billing Services Group Limited C/o Evolution Securities Limited 100 Wood Street London EC2V 7AN United Kingdom Billing Services Group Limited Consolidated Balance Sheets ASSETS December 31 2005 2004 (in thousands) Current assets: Cash and cash equivalents $ $ 50,347 76,313 Accounts receivable 28,541 24,757 Purchased receivables 22,994 26,647 Deferred taxes-current 913 1,255 Income tax receivable 2,400 537 Prepaid expenses and other current assets 2,198 516 ------------ ----------- Total current assets 107,393 130,025 Property and equipment 29,331 15,602 Less accumulated depreciation and amortization 5,358 3,011 ------------ ----------- Property and equipment, net 23,973 12,591 Investment of equity 1,435 - Deferred finance costs 11,463 2,970 Intangible assets 110,422 77,325 Goodwill 172,862 36,619 Other assets 1,481 457 ------------ ----------- Total Assets $429,029 $259,987 LIABILITIES AND SHAREHOLDERS' EQUITY December 31 2005 2004 (in thousands)Current liabilities:Trade accounts payable $ $ 17,337 14,536Third-party payables 78,125 108,265Accrued liabilities 15,322 17,782Current portion oflong-term debt 10,400 15,250Note payable 38 90 ------------ -----------Total currentliabilities 121,222 155,923 Long-term debt, net ofcurrent portion 211,588 52,394Pension liabilities 4,284 -Deferred taxes -noncurrent 14,111 2,556Other liabilities 11,293 9,642 ------------ -----------Total liabilities $ $ 362,498 220,515 Commitments and contingencies Shareholders' equity:Common stock 254,604 -Member's capital - 34,085Additional paid-incapital (187,733) -Retained earnings 3,411 5,387Accumulated othercomprehensive loss (3,751) - ------------ -----------Total shareholders'equity 66,531 39,472Total liabilities andshareholders' equity $429,029 $259,987 Billing Services Group Limited Income Statement December 31 2005 2004 (in thousands) Operating revenues $157,313 $141,332Cost of services 88,665 79,785 ------------ -----------Gross profit 68,648 61,547Gross margin % 43.6% 43.5%Cash operatingexpenses 27,316 31,252 ------------ ----------- Earnings beforeinterest, taxes,depreciation andamortization $41,332 $30,295Depreciation andamortization 15,627 12,300 ------------ -----------Operating income 25,705 17,995 Other income (expense):Interest expense (15,228) (9,978)Write-off ofdeferred financecosts (2,722) -Interest income 2,468 1,596Equity in loss ofinvestment (65) -Other expense, net (1,187) (376) ------------ -----------Total otherexpense, net (16,734) (8,758) ------------ ----------- Income beforeincome tax expense 8,971 9,237 Income tax expense 3,833 3,489 ------------ -----------Net income $5,138 $5,748 Net income per share:Basic $ $ 0.025 0.032 Net cash income per shareBasic $ $ 0.098 0.079 Weighted averageshares outstanding 208,219 179,579 Billing Services Group Limited Consolidated Statements of Cash Flows December 31 2005 2004 (in thousands)Operating activitiesNet income $ $ 5,138 5,748Adjustments to reconcile net income to net cash(used in) provided by operating activities: Depreciation 2,350 4,004Amortization ofintangibles 13,277 8,295Amortization ofdeferred financecosts 4,174 912Amortization ofdiscount on debt 803 232Paid-in-kindinterest on debt 387 1,159Equity in loss ofinvestment 65 -Changes in operating assets and liabilities:Decrease (increase)in receivables 4,078 (3,139)Increase in incometaxes receivable (1,863) (537)Increase in prepaidexpenses and otherassets (1,863) (213)Increase in tradeaccounts payable 1,021 516(Decrease) increasein third-partypayables (30,140) 20,850(Decrease) increasein accruedliabilities (6,600) 2,109Provision fordeferred taxes 3,260 756Increase in otherliabilities 1,828 3,002 ----------- -----------Net cash (used in)provided byoperating activities (4,085) 43,694 Investing activitiesAcquisition of BSGGermany (154,763) -Adjustments ofpurchase price of BCHolding ICorporation, 103 3,543net of cash acquiredContribution of ACIand HBS, net of cashreceived (1,042)Purchase of propertyand equipment,including $1,157 and (13,041) (4,489)$900 of capitalized interest in 2005 and 2004,respectivelyPurchase ofinvestment (1,500) -Net receipts(advances) onpurchasedreceivables 3,653 (5,050) ----------- -----------Net cash used ininvesting activities (165,548) (7,038) Financing activitiesProceeds from thesales of commonstock 96,972 -Borrowings of longterm debt 219,512 2,500Payments on longterm debt (88,590) (10,250)Payments onborrowings of notepayable (90) (89)Dividends paid (71,300) -Finance costs (12,757) (614) ----------- -----------Net cash provided by(used in) financingactivities 143,747 (8,453) Effect of exchangerate changes on cash (80) - ----------- ----------- Net (decrease)increase in cash andcash equivalents (25,966) 28,203Cash and cashequivalents atbeginning of year 76,313 48,110 ----------- -----------Cash and cashequivalents at endof year $ $ 50,347 76,313 ----------- ----------- Billing Services Group Limited Calculation of Cash Net Income (Unaudited) Year Ended December 31 2005 2004 In $'000 Per share In $'000 Per share --------- --------- ----- -------- Adjusted Net Income Net income $5,138 $ 0.025 $ 5,748 $ 0.032 Add: Provision for income taxes 3,833 3,489 Amortization of intangible assets 13,167 8,295 recorded in purchase accounting Loss on extinguishment of debt 3,302 - --------- -------- Total additions 20,302 11,784 Less provision for taxes (7,106) (4,124) (35%) --------- -------- Tax adjusted additions 13,196 7,660 Adjusted Net Income $18,334 $ 0.088 $ 13,408 $ 0.075 ======== ========= Cash Net Income Adjusted Net Income $18,334 $ 13,408 Add: Cash benefits of tax deductible 2,106 854 goodwill --------- -------- Cash Net Income $20,440 $ 0.098 $ 14,262 $ 0.079 ======== ======== ======== ======== WeightedAverage SharesOutstanding('000) 208,219 179,579 This information is provided by RNS The company news service from the London Stock Exchange