BILL.L Regulatory News (BILL)

21 Aug 2009 07:00

21 August 2009

Not for release, publication or distribution, in whole or in part, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction.

BSG, a leading provider of clearing, settlement, payment and financial risk management solutions to the telecommunications industry, today announces its unaudited results for the six months ended 30 June 2009. Highlights include:

(1) EBITDA (a non-GAAP measure) is computed as earnings before interest expense, income taxes, depreciation, amortization and other non-cash and non-recurring expenses

Greg Carter, Chief Executive Officer of BSG, said:

"The Company continues to perform strongly, winning new customers and tightly controlling operational costs.

The growth opportunities in our payment services business and the continued effectiveness of our ongoing cost reduction programs give us confidence for the business going forward, with current trading on track to meet management's expectations for the full year."

ENQUIRIES:

NOTES TO EDITORS

BSG (www.bsgclearing.com) was admitted to AIM, the Alternative Investment Market of the London Stock Exchange, in June 2005 and trades under the symbol BILL. The Company's operating subsidiary, BSG Clearing Solutions, is the leading provider of third party clearinghouse services for the North American telecommunications industry. In addition to the core clearing business, BSG is fast becoming the company of choice for specialized risk management and credit card processing services as well as third party verification services specifically designed for communications providers and e-commerce merchants.

  Chief Executive's Statement

I am pleased to report that BSG performed strongly during the first half of the year with significant improvements in revenue, EBITDA, operational cost management and long-term debt reduction.

Revenue was $5.9 million, or 9%, higher than last year's first half results, and EBITDA improved by $1.8 million, or 10%. The improved first half revenue in 2009 largely reflected favorable pricing trends in the local exchange carrier ("LEC") clearinghouse business, as well as ongoing record count growth in our enhanced product offering. The increase in turnover, combined with a reduction in cash operating expenses (particularly payroll and related costs), resulted in a positive EBITDA comparison.

As part of our ongoing cost management program, we closed a data center in Virginia that was used by our third-party verification business. The planned site rationalisation removed considerable expense associated with this function, and we have successfully completed the consolidation of this operation in our San Antonio facility in Texas on schedule.

Operationally, we are experiencing a positive response from digital content merchants in connection with our ability to place non-telephony related charges, such as music and video downloads, to the telephone bill. While this initiative is still relatively new, BSG continues to educate and inform this market vertical about the benefits of our Bill2Phone™ services and anticipates additional contract wins with meaningful revenue contribution in future periods.

Current Trading and Prospects

In the first half of 2009, BSG generated $19.2 million of EBITDA, compared with $17.4 million in the first half of 2008. Notwithstanding the challenging economic conditions, we remain cautiously optimistic that the Company's financial results in the second half of 2009 will be in line with first half performance. The Board continues to view the prospects of the Company with confidence.

FINANCIAL REVIEW 

Financial Review of the Six Months Ended 30 June 2009

The Company's unaudited results for the six months ended 30 June 2009 are compared against the comparable period of 2008 in the accompanying financial statements. BSG's consolidated financial statements are prepared in accordance with generally accepted accounting principles ("GAAP") in the United States.

Certain Terms

Revenues.  Revenues are derived primarily from fees charged to wireline service providers for data clearing, financial settlement, information management, payment and financial risk management, third party verification and customer service functions.

Cost of Services and Gross Profit. Cost of services primarily includes fees charged by local exchange carriers ("LECs") for billing and collection services. Such fees are assessed for each record submitted and for each bill rendered to end-user customers. BSG charges its customers a negotiated fee for LEC services. Accordingly, gross profit is generally dependent upon transaction volume, processing fees charged per transaction and any differential between the LEC fees charged to customers by BSG and the related fees charged to BSG by LECs.

Cash Operating Expenses. Cash operating expenses include all selling, marketing, customer service, facilities and administrative costs (including payroll and related expenses) incurred in support of operations and settled through the payment of cash.

Depreciation and Amortization. Depreciation expense applies to software, furniture and fixtures, telecommunications and computer equipment. Amortization expense relates to definite-lived intangible assets that are amortized in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets." These assets consist of contracts with LECs, contracts with customers and trademarks. The assets are depreciated or amortized over their respective useful lives. In addition, deferred finance fees are amortized over the term of the related loans.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). Earnings before interest expense, income taxes, depreciation and amortization, a non-GAAP metric, is a measurement of profitability often used by investors and lenders. EBITDA excludes non-cash charges related to stock-based compensation and non-recurring expenses.

Comparison of Results for the Six Months Ended 30 June 2009 to Six Months Ended 30 June 2008

Total Revenues. Total revenues of $71.6 million in the first half of 2009 were $5.9 million, or 9%, higher than the $65.7 million of revenues recorded during the first half of 2008. The $5.9 million increase largely reflected improved pricing for LEC clearinghouse services and ongoing growth in enhanced billing services, offset in part by a decline in long-distance processing volume.

Cost of Services and Gross Profit. The Company's cost of services in the first half of 2009 was $42.5 million, compared to $37.3 million in the comparable period of 2008. The $5.2 million increase in cost of services reflected higher LEC fees that are associated with higher LEC revenue. The Company's gross profit was $29.2 million in the first half of 2009, compared to $28.4 million in the comparable 2008 period. The Company's gross profit margin in the first half of 2009 was 40.7%, compared to 43.2% in the first half of 2008. The 2.5 percentage point decline in gross margin primarily reflected the increase in LEC rates charged to the Company, which in turn the Company passes through to its customers. Accordingly, there is generally a dollar-for-dollar increase in both Company revenue and cost of services in connection with LEC rate increases which serve to reduce overall gross margin.

Cash Operating Expenses. Cash operating expenses were $9.9 million in the first half of 2009, compared to $11.1 million in the comparable period of 2008. The $1.2 million decline reflected personnel reductions, particularly in corporate overhead functions.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The Company generated $19.2 million of EBITDA during the first half of 2009, compared to $17.4 million in the comparable period of 2008.

Depreciation and Amortization Expense. Depreciation and amortization expense in the first half of 2009 (excluding amortization of deferred finance costs and original issue discount on outstanding debt) was $6.7 million, compared to $6.4 million in the first half of 2008. The $0.3 million increase was largely attributable to additional depreciation recorded on capitalized software placed into service after the first half of 2008. Goodwill was neither amortized nor impaired in either period.  

Nonrecurring Restructuring Expenses. During the first half of 2008, the Company recorded $2.4 million of restructuring charges related to a cost reduction program. The restructuring charges primarily consisted of severance and related compensation costs paid or reserved for terminated employees and contractors. Given its one-time nature, the 2008 expense is not included as a deduction to earnings for purposes of calculating EBITDA.

Stock-based Compensation Expense. The Company recognized $0.3 million of non-cash compensation expense during the first half of 2009, compared to $0.7 million in the first half of 2008. The $0.4 million decrease reflected a reduction in the number of shares covered by outstanding stock options, due to the termination of employment of the optionees. Stock-based compensation expense, all of which is non-cash, is not included as a deduction to earnings for purposes of calculating EBITDA.

Interest Expense. Interest expense of $3.0 million in the first half of 2009 was $2.4 million lower than the $5.4 million of interest expense incurred in the first half of 2008. The lower interest expense in 2009 was attributable to lower outstanding borrowings due to debt prepayments and repurchases coupled with lower interest rates from period to period.

Changes in Cash and Working Capital.  BSG's cash balance at 30 June 2009 was $18.6 million, compared to $27.4 million at 31 December 2008. The reduction in cash of $8.8 million primarily relates to the reduction in the Company's long-term debt. The Company's working capital position (net of funded debt) at 30 June 2009 was $6.5 million, compared to $7.4 million at 31 December 2008. The Company can operate with a small or even negative working capital position, because a significant portion of its current liabilities would require payment over time, typically over an 18-month period, only if customers were to reduce significantly the volume of business done with the Company or terminate their relationships.

Capital Expenditures. During the first six months of 2009, the Company incurred $1.9 million of capital expenditures, including disbursements for ongoing software development, purchases of telecommunications and computer equipment.

Cash Flow for the Six Months Ended 30 June 2009

Cash flow from operating activities. Net cash provided by operating activities was $4.1 million during the first half of 2009. Net cash provided was principally attributable to $6.7 million in depreciation and amortization (excluding amortization of deferred finance costs and original issue discount on outstanding debt), $5.8 million of net income and a $1.5 million decrease in accounts receivable, offset by an $8.2 million decrease in accounts payable related to customers (including $3.2 million related to dial-around compensation, or "DAC" customers), a $1.3 million decrease in income taxes payable and a $0.4 million decrease in accrued sales taxes related to customers.

Cash flow from investing activities. Cash used in investing activities was $2.9 million, reflecting $1.9 million in capital expenditures and a $1.0 million increase in purchased receivables.

Cash flow from financing activities. Cash used in financing activities was $10.4 million during the first half of 2009, reflecting $9.6 million of principal payments on long-term debt and $0.8 million in payments on settlement of derivative contracts. 

A copy of this statement is available on the Company's website (www.bsgclearing.com) and copies are available from BSG's Nominated Advisor at the address below:

Billing Services Group Limited

Consolidated Balance Sheets

(In thousands, except shares)

Billing Services Group Limited

Consolidated Balance Sheets (continued)

(In thousands, except shares)

See accompanying notes.

  Billing Services Group Limited

Consolidated Statements of Operations

(In thousands, except per share amounts)

See accompanying notes.

Billing Services Group Limited

Consolidated Statements of Cash Flows

(In thousands)

  Billing Services Group Limited

Consolidated Statements of Cash Flows (continued)

(In thousands)

See accompanying notes.

BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Billing Services Group Limited ("BSG" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could vary from the estimates that were used.

NOTE 2 NET INCOME PER COMMON SHARE

Basic and diluted net income per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the relevant periods. 

Diluted net income per share includes the effect of all dilutive options exercisable into common stock. For the six month period ended 30 June 2009, diluted net income per share equaled $0.020 and basic net income per share equaled $0.021. For the six month period ended 30 June 2008, diluted net income per share equaled basic net income per share because the exercisability of the outstanding stock options was based upon market conditions that had not been met at the end of the reporting period.

NOTE 3 LONG-TERM DEBT

Effective on 19 December 2007, the Company refinanced its debt. The new credit facility matures in 2014. At 30 June 2009, the actual interest rate on the debt was 4.56%, reflecting a 30-day London Interbank Offered Rate ("LIBOR") rate of 0.3125% plus a margin of 4.25%.

At 30 June 2009, the Company had in place interest rate swap arrangements for a notional amount of $48 million. Under the contracts, the Company will effectively pay fixed rates per annum of 4.00% to 4.18% on its loans, excluding the applicable interest margin on such loans.

BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

NOTE 4 COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims, legal actions and regulatory proceedings arising in the ordinary course of business. The Company believes it is unlikely that the final outcome of any of the claims or proceedings to which the Company is a party will have a material adverse effect on the Company's financial position or results of operations. Due to the inherent uncertainty of litigation, however, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company's results of operations for the fiscal period in which such resolution occurred.

The Company's subsidiary's tax returns for 2004 through 2008 tax years generally remain subject to examination by the federal and most state tax authorities. The Internal Revenue Service is currently examining the tax returns of the Company's subsidiary for the years ended December 31, 2004 to 2006.

Forward Looking Statements

This report contains certain "forward-looking" statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, borrowing arrangements, interest rates, foreign exchange rates, litigation, governmental regulation and supervision, seasonality, product introductions and acceptance, technological change, changes in industry practices, one-time events and other factors described herein and in other announcements made by the Company. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.