BILL.L Regulatory News (BILL)

6 Sep 2007 07:00

Billing Services Group Limited06 September 2007 6 September 2007 Billing Services Group Limited Interim Results For The Six Month Period Ended 30 June 2007 CONTINUING STRONG PERFORMANCE IN LINE WITH EXPECTATIONS Billing Services Group Limited ("BSG"), a leading worldwide provider ofclearing, settlement, payment and financial risk management solutions to thetelecommunications industry, today announces its unaudited results for the sixmonths ended 30 June 2007. Financial Highlights • Turnover of $86.4 million was level with last year (2006: $86.6 million). • Corporate office administrative expenses decreased by 44% to $3.8 million (2006: $6.8 million). • EBITDA increased by 18% to $25.6 million (2006: $21.8 million). Operational Highlights • 112 new contracts signed (a 20% increase on the total for the whole of the previous year) • 79 in the North American wireline business (compared with 72 for the full 2006 calendar year). Of these, 13 were for its new credit card service and 14 were for its recently introduced Bill2PhoneTM service that is targeted towards Internet content transaction billing to the local telephone number. The contracts for new service offerings are anticipated to result in modest incremental revenue impact over the near term. • 33 in the wireless business (compared with 21 for the full 2006 calendar year). • The North American wireline business commenced usage of enriched and better integrated business control software which will improve service and create further operational efficiencies. Commenting on the interim results, Randall W. Brouckman, Chief Executive Officerof BSG, said: "The Company continues to perform strongly, and in line with managementexpectations, demonstrating a clear ability to win new business, introduce newservices, integrate acquired businesses and substantially reduce costs. "The US wireline business is successfully enhancing its value proposition as afull payment services operation, and the wireless business has begun to reap thebenefits from the expanded commercial team, assembled and hired in the secondhalf of last year. "Trading remains on track for the full year." ENQUIRIES: Billing Services Group Limited +1 210 949 7000Randall W. Brouckman, Chief Executive Officer Norman M. Phipps, Chief Financial Officer Evolution Securities Limited +44 (0)20 7071 4300 Stuart AndrewsFergus Marcroft The Hogarth Partnership +44 (0)20 7357 9477 Julian Walker Chief Executive's Statement During the first half of the year, BSG performed strongly and in line withmanagement's expectations. In addition to business development across the group,profitability improvements further reflected the benefits from: •Strategic acquisitions in 2006 •The positive impact of an expanded sales team in capturing new customers throughout the world •The use of enhanced technology to improve service and efficiency •Management's aggressive cost reduction program in headcount, outsourcing, office closures and head office operational costs, begun in the second half of 2006 •Lower cost of capital Our revenue was level against last year's first half results, however, EBITDAimproved by 18%. The first half revenue in 2007 reflected management'santicipated lower transaction volumes in the North American clearinghousebusiness, offset primarily by incremental revenue from businesses acquired in2006 and positive foreign exchange translation. An improvement in revenue mixfavoring higher margin services and our vigorous expense control resulted in apositive EBITDA comparison. Our success reflected improvements in both of the Group's principal businesssectors. During the first half of 2007, EBITDA from the Group's North Americanwireline business (inclusive of all corporate administrative expenses) was $14.4million, compared to $11.9 million in the first half of 2006. During the sametwo periods, the wireless operations generated EBITDA of $11.2 million and $9.9million, respectively. We have entered into 112 new service contracts in the first half of 2007,compared to a total of 93 during the entire 2006 calendar year. Many of the newcontracts cover recently introduced services for small and non-telecomcustomers, which are anticipated to result in modest incremental revenue impactover the near term. The Board is positively expectant about the long-termopportunities with these new customers. Our achievements in sales and expense control have contributed to astrengthening foundation for future success. Management's success is reflectedin recently issued B+/B1 credit ratings from Standard & Poor's Ratings Servicesand Moody's Investor Service, respectively, with respect to when-issued debt ofthe North American business unit following completion of the previouslyannounced sale of the Company's wireless business. Each rating agency hasassigned a "stable" outlook to the Company's North American business. Operational Review The business has been strengthened by the addition of 79 new clearing andsettlement customers in North America, 33 new clearing and settlement wirelesscontracts and the new year implementation of an updated business control systemfor our North American wireline business. The new software will allow us toimprove service to customers and achieve greater operational efficiencies. Current Trading and Prospects The Group generated $25.6 million of EBITDA in the first half of 2007, comparedto $21.8 million in the first half of 2006. We anticipate that the Group'srecurring operational results in the second half of 2007 will compare favorablyto the first half performance as a consequence of seasonality in the wirelessbusiness and the effect of new customers. Our previously announced sale of the wireless business remains under review by the European Commission. Trading remains on track for the full year. Randall W. BrouckmanChief Executive OfficerBilling Services Group Limited FINANCIAL REVIEW Financial Review of the Six Months Ended 30 June 2007 The Group's unaudited results for the six months ended 30 June 2007 include theoperations of United Clearing (acquired 1 March 2006), VoiceLog's third partyverification business (acquired 30 June 2006) and VeriSign's toll clearinghouse(acquired 1 December 2006). The comparable 2006 results include only theoperations of United Clearing between 1 March 2006 and 30 June 2006. BSG's consolidated financial statements are prepared in accordance withgenerally accepted accounting principles in the United States ("US GAAP"). Certain Terms Revenues. BSG's revenues are derived from its North American clearinghouse andthird-party verification businesses and from its wireless clearing and financialsettlements businesses. North American revenues are derived primarily from feescharged to wireline service providers for data clearing, financial settlement,information management, payment and financial risk management, third partyverification and customer service functions. Wireless revenues largely consistof fees charged to wireless carriers for clearinghouse services related toroaming charges and the financial settlements between roaming carriers. Cost of Services and Gross Profit. BSG's cost of services for its North Americanwireline business primarily includes fees charged by local exchange carriers("LECs") for billing and collection services. Such fees are assessed for eachrecord submitted and for each bill rendered to end-user customers. BSG chargesits customers a negotiated fee for LEC services. Accordingly, gross profitgenerated by the North America business is generally dependent upon transactionvolume, processing fees charged per transaction and any differential between theLEC fees charged to customers by BSG and the related fees charged to BSG byLECs. There is no material cost of services associated with revenues from theCompany's wireless business. Cash Operating Expenses. Cash operating expenses include all selling, marketing,customer service, facilities and administrative costs (including payroll andrelated expenses) incurred in support of operations and settled through thepayment of cash. EBITDA. Earnings before interest, taxes, depreciation and amortization, anon-GAAP measure, is a measurement of profitability often used by investors andlenders. EBITDA excludes non-cash charges related to stock-based compensationand debt extinguishment charges. Depreciation and Amortization. Depreciation expense applies to software,furniture and fixtures, telecommunications and computer equipment. Amortizationexpense relates principally to definite-lived intangible assets that areamortized in accordance with SFAS No. 142 "Goodwill and Other IntangibleAssets." These assets consist primarily of contracts with LECs, relationshipswith customers and trademarks. The assets are depreciated or amortized overtheir respective useful lives. In addition, deferred finance fees are amortizedover the term of the related loans. Comparison of Results for the Six Months Ended 30 June 2007 to Six Months Ended30 June 2006 Total Revenues. Total revenues of $86.4 million in the first half of 2007 werein line with last year's first half revenues of $86.6 million. The $0.2 milliondecrease in revenues in 2007 reflected reduced North American LEC clearinghouserevenue offset by revenue from businesses acquired in 2006. The anticipateddecline in North American LEC clearinghouse revenues reflected reducedtransaction volumes, resulting from increased consumer use of mobile devices. Cost of Services and Gross Profit. Cost of services of $37.5 million during thefirst half of 2007 decreased by $2.9 million, or 7%, compared to the first halfof 2006. The decrease in cost of services is primarily due to the expecteddecrease in the volume of wireline billing transactions in North America. TheCompany's gross profit margin during the first half of 2007 was 56.6%, comparedto 53.4% during the first half of 2006. The 3.2 percentage point increase inmargin resulted largely from a change in revenue components favoring highermargin services, such as third party verification and wireless clearing andsettlement services. Cash Operating Expenses. Cash operating expenses, excluding corporateadministrative expenses, were $19.5 million in the first half of 2007 comparedto $17.7 million during the first six months of 2006. The $1.8 million increasein expenses was largely attributable to operating expenses within companiesacquired during the second half of 2006. Corporate administrative expenses of$3.8 million in the first half of 2007 were $3.0 million lower than the $6.8million of expenses incurred in the comparable period of 2006. The 44% reductionreflects restructuring actions taken during the second half of 2006, includingpersonnel terminations and office closures. Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). TheCompany generated $25.6 million of EBITDA (a non-GAAP measure) during the firsthalf of 2007, compared to $21.8 million in the comparable period of 2006. TheCompany's EBITDA includes $14.4 million generated by the Company's NorthAmerican wireline business and $11.2 million from the wireless business. TheCompany allocates 100% of corporate office administrative expenses to itswireline business. Excluding this charge, the North American wireline businessgenerated $18.2 million in EBITDA for the six month period ended 30 June 2007.The increase in EBITDA in 2007 largely reflects a change in revenue mix favoringthe higher margin services coupled with a reduction in operating expenses. Depreciation and Amortization Expense. Depreciation and amortization expense inthe first half of 2007 (excluding amortization of deferred finance costs) was$13.4 million, compared to $11.3 million in the first half of 2006. The $2.1million increase is attributable to additional charges at acquired companiessubsequent to their acquisition dates and depreciation recorded on capitalizedsoftware placed into service during 2007. Goodwill was neither amortized norimpaired in either period. Debt Extinguishment Costs. The Company refinanced its debt in May 2006. Duringthe first half of 2006, the Company incurred $21.1 million of debtextinguishment costs, including a write-off of unamortized deferred financecosts and prepayment penalties. There were no debt extinguishment costs incurredduring the first half of 2007. Stock-based Compensation Expense. During 2006, the Company adopted FASBStatement No. 123(R), which provides for recognition of non-cash compensationexpense for stock options. The Company recognized $0.9 million of non-cashcompensation expense during the first half of 2007, compared to $1.6 million in2006. The $0.7 million decrease in expense reflected a reduction of 9.7 millionshares covered by outstanding stock options. Interest Expense. Interest expense of $8.4 million in the first half of 2007 was$2.3 million lower than the $10.7 million of interest expense incurred in thefirst half of 2006. The lower interest expense in 2007 largely reflected lowerinterest rates achieved as a result of more favorable terms following the May2006 refinancing, and the capitalization of $1.1 million of interest in thefirst half of 2007 compared to $0.6 million during the first half of 2006. Changes in Working Capital. BSG's cash balance at 30 June 2007 was $46.6million, compared to $41.9 million at 31 December 2006. Fluctuations in dailycash balances are normal due to the variability of funds collected from LECs andprocessed on a daily basis. In the North American business unit, funds arereceived daily from LECs but most of such funds are ordinarily disbursed tocustomers only once each week. The Company's working capital position (net of funded debt) at 30 June 2007 was$4.4 million compared to negative $3.7 million at 31 December 2006. The $8.1million increase was the result of positive cash flow from business activityplus favorable conversion rates on working capital denominated in foreigncurrencies. The Company can operate with a small or even 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 reduce significantly the volume of business done withthe Company or terminate their relationships. Capital Expenditures. During the first six months of 2007, the Company incurred$5.5 million of capital expenditures, including disbursements for ongoingsoftware development, purchases of telecommunications and computer equipment andcapitalized interest of $1.1 million. Cash Flow for the Six Months Ended 30 June 2007 Cash flow from operating activities. Net cash provided by operating activitieswas $15.0 million during the first half of 2007. Net cash provided wasprincipally attributable to $14.1 million in depreciation and amortization, a$3.3 million increase in accounts payable related to customers, a $2.8 milliondecrease in receivables and net income of $2.5 million, offset by a $3.6 millionreduction in accrued interest, a $2.5 million increase in other current andother assets and $1.9 million in payments for acquired companies. Cash flow from investing activities. Cash used in investing activities was $5.1million during the first half of 2007, and it included $5.5 million of capitalexpenditures offset by a $0.4 million reduction in purchased receivables. Cash flow from financing activities. Cash used in financing activities was $5.5million during the first half of 2007. Such amount reflected scheduled principalpayments under the Company's credit facilities. 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 Limitedc/o Evolution Securities Limited100 Wood StreetLondon EC2V 7ANUnited Kingdom Billing Services Group Limited Consolidated Balance Sheets (In thousands, except shares) 30 June 2007 31 Dec 2006 ------------ ----------- (Unaudited) (Audited)AssetsCurrent assets: Cash and cash equivalents $ 46,639 $ 41,881 Accounts receivable 28,077 30,656 Purchased receivables 19,678 20,094 Income tax receivable 2,726 2,726 Prepaid expenses and other current assets 4,220 1,836 Deferred taxes - current 1,409 1,218 ---------- ---------Total current assets 102,749 98,411 Property, equipment and software 72,790 66,494Less accumulated depreciation and amortization 19,505 15,074 ---------- ---------Net property, equipment and software 53,285 51,420 Investment at equity 1,230 1,230Deferred finance costs, net of accumulated amortization of $1,476 and $830 at 30 June 2007 and 31 December 2006, respectively 5,313 5,959Intangible assets, net of accumulated amortization of $47,881 and $38,065 at 30 June 2007 and 31 December 2006, respectively 89,393 97,990Goodwill 231,250 226,773Other assets 1,303 1,200 ---------- ---------Total assets $ 484,523 $ 482,983 ========== ========= Billing Services Group Limited Consolidated Balance Sheets (continued) (In thousands, except shares) 30 June 2007 31 Dec 2006 ------------ ----------- (Unaudited) (Audited)Liabilities and shareholders' equityCurrent liabilities: Trade accounts payable $ 13,501 $ 13,184 Third-party payables 67,370 66,074 Accrued liabilities 17,122 20,603 Current portion of long-term debt 11,152 11,011 Purchase price payable 330 2,265 Note payable - - ---------- ----------Total current liabilities 109,475 113,137 Long-term debt, net of current portion 237,941 240,944Pension liabilities 5,483 5,062Deferred taxes - noncurrent 11,992 12,699Other liabilities 9,202 7,235 ----------- ----------Total liabilities 374,093 379,077 Commitments and contingencies Shareholders' equity: Common stock, $1 par value, 350,000,000 shares authorized, 279,863,248 issued and outstanding 279,863 279,863 Additional paid-in capital (deficit) (170,597) (171,471) Retained (deficit) earnings (13,166) (15,689) Accumulated other comprehensive income 14,330 11,203 ----------- ----------Total shareholders' equity 110,430 103,906 ----------- ----------Total liabilities and shareholders' equity $ 484,523 $ 482,983 =========== ========== See accompanying notes. Billing Services Group Limited Consolidated Statements of Operations (In thousands, except per share amounts) Six Months Ended 30 June 2007 2006 ----------- ----------- (Unaudited) (Unaudited) Operating revenues $ 86,371 $ 86,570Cost of services 37,476 40,342 ----------- -----------Gross profit 48,895 46,228 Selling, general, and administrative expenses, excluding corporate office administrative expenses 19,459 17,677Corporate office administrative expenses 3,816 6,755 ----------- ----------- EBITDA 25,620 21,796 Depreciation and amortization expense 14,070 12,168Stock-based compensation expense 873 1,555 ----------- ----------- Operating income 10,677 8,073 Other income (expense): Interest expense, net of $1,095 and $600 capitalized in 2007 and 2006, respectively (8,392) (10,700) Debt extinguishment costs - (21,053) Interest income 1,309 1,293 Other expense, net (220) (1,327) ----------- -----------Total other expense, net (7,303) (31,787) ----------- ----------- Income (loss) before income taxes 3,374 (23,714) Income tax (expense) benefit (851) 4,641 ----------- -----------Net income (loss) $ 2,523 $(19,073) =========== =========== Net income (loss) per share: Basic and diluted $ 0.009 $ (0.070) =========== =========== Weighted average shares outstanding 279,863 271,351 =========== =========== See accompanying notes. Billing Services Group Limited Consolidated Statements of Cash Flows (In thousands) Six Months Ended 30 June 2007 2006 ----------- ----------- (Unaudited) (Unaudited)Operating activitiesNet income (loss) $ 2,523 $ (19,073)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 4,185 3,235 Amortization of intangibles 9,209 8,004 Amortization of deferred finance costs 621 874 Write-off of deferred finance charges - 11,995 Amortization of other assets 55 55 Paid-in-kind interest on debt - 1,490 Stock-based compensation expense 873 1,555 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 2,768 (882) (Increase) in other current and other assets (2,490) (2,184) Increase (decrease) in trade accounts payable 295 (2,420) Increase (decrease) in third-party payables 3,262 (9,364) (Decrease) increase in accrued interest (3,644) 473 Increase (decrease) in accrued liabilities 289 (1,372) (Decrease) in provision for deferred taxes (1,016) (4,710) (Decrease) in purchase price payable (1,935) - Increase (decrease) in other liabilities 54 (15) ----------- ----------Net cash provided by (used in) operating activities 15,049 (12,339) Investing activitiesPurchase of BSG Germany - 705Cash acquired in purchase of United Clearing, net of cash outlay - 7,234Purchase of VoiceLog - (13,980)Purchases of property, equipment and software, including $1,095 and $600 of capitalized interest in 2007 and 2006, respectively (5,503) (9,284)Net receipts (advances) on purchased receivables 416 (2,745) ----------- ----------Net cash used in investing activities (5,087) (18,070) Billing Services Group Limited Consolidated Statements of Cash Flows (continued) (In thousands) Six Months Ended 30 June 2007 30 June 2006 ----------- -----------Financing activitiesProceeds from the sales of common stock - 164Borrowings of long-term debt - 269,400Borrowings on revolving credit facility - 12,500Payments on long-term debt (5,528) (245,480)Payments on note payable - (38)Financing costs - (7,304) ---------- -----------Net cash (used in) provided by financing activities (5,528) 29,242 Effect of exchange rate changes on cash 323 (250) ---------- -----------Net increase (decrease) in cash and cash equivalents 4,757 (1,417)Cash and cash equivalents at beginning of period 41,882 50,347 ----------- -----------Cash and cash equivalents at end of period $ 46,639 $48,930 ============ =========== 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 BillingServices Group Limited and subsidiaries (collectively, "BSG," the "Group," orthe "Company") have been prepared in accordance with generally acceptedaccounting principles for interim financial information. Accordingly, they donot include all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements. Management uses estimates and assumptions in preparing financial statements inaccordance with generally accepted accounting principles. Those estimates andassumptions affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities, and the reported amounts ofrevenues and expenses. Actual results could vary from the estimates that wereused. NOTE 2 NET INCOME (LOSS) PER COMMON SHARE Basic and diluted net income (loss) per share are computed by dividing the netincome (loss) by the weighted average number of shares of common stockoutstanding during the relevant periods. Diluted net income (loss) per share includes the effect of all dilutive options,warrants and instruments convertible into common stock. Diluted net income(loss) per share equals basic income (loss) per share because the exercisabilityof the outstanding stock options is based upon market conditions that have notbeen met as of the end of the reporting period. NOTE 3 ACQUISITIONS On March 3, 2006, the Company declared the share for share exchange offer forthe entire issued and to be issued share capital of United Clearing Plc whollyunconditional and with effect from that date United Clearing became a subsidiaryof the Company. In connection with the share for share exchange offer, theCompany issued 25.1 million BSG shares to holders of United Clearing securities.The acquisition was accounted for under purchase accounting. BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) On June 30, 2006, a member of the Group purchased substantially all of theassets (and assumed certain identified liabilities) of the third partyverification business of VoiceLog, LLC, a North American business engaged inthird party verification services. The purchase price was $16.4 million. Theacquisition was accounted for under purchase accounting. On December 1, 2006, a member of the Group purchased substantially all of theassets of the LEC toll clearinghouse business of VeriSign, Inc. The purchaseprice was $1.9 million. The acquisition was accounted for under purchaseaccounting. NOTE 4 LONG-TERM DEBT On May 5, 2006, the Group refinanced its debt. The Company borrowed $255.0million and used the proceeds to (i) repay then-existing debt totaling $238.0million, including accrued interest and prepayment premiums; (ii) pay $6.8million in transaction costs; and (iii) supplement working capital by $10.2million. The new credit agreement consists of the following facilities: ($ in millions) Maturity First lien credit facility (US operations) 105 2012 First lien credit facility (German operations) 110 2012 Second lien facility (US operations) 40 2013 Revolving credit (available worldwide) 15 2011 Total $270 Additionally, the credit agreement includes an uncommitted $60 millionsupplemental facility for use in financing acquisitions. BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) Borrowings under the credit facility are at the following rates per annum: Interest Rate on LIBOR/Euribor Actual Rate at Loans June 30, 2007 ----------------- ------------ First Lien (US) LIBOR + 2.5% 7.88% First Lien (Germany) EURIBOR + 2.5% 6.58% Second Lien LIBOR + 6.00% 11.38% At June 30, 2007, the Company had in place interest rate swap arrangements for anotional amount of $135.0 million. NOTE 5 COMMITMENTS AND CONTINGENCIES The Company is involved in various claims, legal actions and regulatoryproceedings arising in the ordinary course of business. The Company believes itis unlikely that the final outcome of any of the claims or proceedings to whichthe Company is a party will have a material adverse effect on the Company'sfinancial position or results of operations. Due to the inherent uncertainty oflitigation, however, there can be no assurance that the resolution of anyparticular claim or proceeding would not have a material adverse effect on theCompany's results of operations for the fiscal period in which such resolutionoccurred. On or about September 21, 2006, certain US subsidiaries of the Company and anunrelated billing aggregator were joined as parties by the Federal TradeCommission ("FTC") in a lawsuit in the United States filed against a formercustomer, Nationwide Connections, Inc. The FTC alleges, inter alia, that thedefendants engaged in deceptive and unfair billing practices under section 5 ofthe FTC Act. There is no specific monetary amount claimed. The Company hasdenied the allegations and continues to defend the action. BILLING SERVICES GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) Forward Looking Statements This report contains certain "forward-looking" statements and informationrelating to the Group that are based on the beliefs of the Group's management aswell as assumptions made by and information currently available to the Group'smanagement. When used in this report, the words "anticipate," "believe,""estimate," "expect" and "intend" and words or phrases of similar import, asthey relate to the Group or its subsidiaries or Group management, are intendedto identify forward-looking statements. Such statements reflect the currentrisks, uncertainties and assumptions related to certain factors including,without limitation, competitive factors, general economic conditions, customerrelations, relationships with vendors, interest rates, foreign exchange rates,litigation, governmental regulation and supervision, seasonality, productintroductions and acceptance, technological change, changes in industrypractices, onetime events and other factors described herein and in otherannouncements made by the Group. Based upon changing conditions, should any oneor more of these risks or uncertainties materialize, or should any underlyingassumptions prove incorrect, actual results may vary materially from thosedescribed herein as anticipated, believed, estimated, expected or intended. TheGroup does not intend to update these forward-looking statements. This information is provided by RNS The company news service from the London Stock Exchange