BILL.L Regulatory News (BILL)

15 Aug 2008 07:00



15 August 2008

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.

Billing Services Group Limited 

("BSG" or the "Company")

Interim Results For The Six Month Period Ended 30 June 2008

CONTINUING STRONG PERFORMANCE - TRADING IN LINE WITH EXPECTATIONS

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 2008.

Financial Highlights 

Unless otherwise indicated, the 2007 revenue and EBITDA figures below exclude the results of the wireless business, which was sold in December 2007 and is accordingly treated as a "discontinued operation" within the accompanying financial statements.  Net income for 2007, however, includes the results of discontinued operations, under applicable accounting rules.

						Six Months Ended 30 June
$ millions						2008	2007
Income from continuing operations						$ 1.6	$  1.6
Income  from discontinued operations						-	0.9
	Total net income					$ 1.6	$ 2.5

Operational Highlights

$1.5 million increase in turnover and a 1.4 percentage point expansion in gross profit margin, compared to the first half of 2007.

Turnover increased by $3.3 million, or 6%, excluding one customer from whom turnover declined $1.8 million, in line with management's expectations.

New contracts during the first half of 2008, inclusive of third party verification in both periods, increased 47% to 175 (2007: 119).

Commenting on the interim results, Greg Carter, Chief Executive Officer of BSG, said:

"The Company continues to perform strongly, winning new customers and enjoying better profit margins due to an improved mix of business and successful trimming of overhead costs.

Half year results are in line with our expectations, and the growth opportunities in our payment services business and the effectiveness of on-going cost reduction programs give us confidence for the business going forward.

Trading is on track to meet management's expectations for the full year."

ENQUIRIES:

Billing Services Group Limited Greg Carter Christopher R. Smith	+1 210 949 7000
Evolution Securities Limited Stuart Andrews	+44 (0)20 7071 4300
The Hogarth Partnership Julian Walker	+44 (0)20 7357 9477

NOTES TO EDITORS

BSG (www.bsgclearing.com) was admitted to the AiM 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 ecommerce merchants.

  Chief Executive's Statement

In this, my first set of results since my appointment as Chief Executive Officer on 1 May 2008, I am pleased to report that BSG performed strongly during the first half of the year. EBITDA improved due to higher turnover, an improved profit margin and further reduced overhead expenses.

Revenue was $1.5 million, or 2%, higher than last year's first half results, and EBITDA improved by $2.9 million, or 20%. The improved first half revenue in 2008 largely reflected favorable pricing trends in the local exchange carrier ("LEC") clearinghouse business, offset in part by an anticipated decline in business from one customer. The increase in turnover, combined with an improvement in the mix of business favoring higher margin customers, resulted in a positive EBITDA comparison.

We have seen a strong demand for our services, entering into 175 new service contracts in the first half of 2008, compared to a total of 119 during the first half of 2007 (inclusive of third party verification services in both periods). New contracts provide business opportunities with both new customers and existing customers which are expanding their use of the Company's portfolio of service offerings.

New contract growth was strongest in the core LEC clearinghouse business. Additionally, 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 Bill2Phone™ and anticipates additional contract wins in future periods.

Current Trading and Prospects

In the first half of 2008, BSG generated $17.4 million of EBITDA, compared to $14.5 million in the first half of 2007. We anticipate that the Company's operational results in the second half of 2008 will be in line with first half performance and accordingly believe that trading will be in line with our expectations for the full year.

Greg CarterChief Executive OfficerBilling Services Group Limited

  

FINANCIAL REVIEW 

Financial Review of the Six Months Ended 30 June 2008

The Company's unaudited results for the six months ended 30 June 2008 are compared against the comparable period of 2007 in the accompanying financial statements. The financial results for the six months ended 30 June 2007 reflect the treatment of the wireless business (sold in December 2007) as a discontinued operation. Accordingly, the 2007 revenue and EBITDA figures herein exclude the results of the wireless business. Net income for the first half of 2007, however, includes the results of discontinued operations, under applicable accounting rules.

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 primarily of contracts with customers, contracts with LECs 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 2008 to Six Months Ended 30 June 2007

Total Revenues. Total revenues of $65.7 million in the first half of 2008 were $1.5 million, or 2%, higher than the $64.2 million of revenues recorded during the first half of 2007. The $1.5 million increase largely reflected improved pricing for LEC clearinghouse services, offset in part by a decline in processing volume. Excluding a $1.8 million anticipated decline in revenues from one customer, revenue increased by $3.3 million, or 6%.

Cost of Services and Gross Profit. The Company's cost of services in the first half of 2008 was $37.3 million, compared to $37.4 million in the comparable period of 2007. The $0.1 million reduction in cost of services reflected anticipated lower volume from one customer with whom there is a higher than average cost of service, partially offset by higher LEC fees for other customers. The Company's gross profit was $28.4 million in the first half of 2008, compared to $26.8 million in the comparable 2007 period. The Company's gross profit margin in the first half of 2008 was 43.2%, which compared favorably to 41.8% in the first half of 2007. The 1.4 percentage point improvement in gross margin reflected a favorable mix of revenue, with proportionately more revenue arising from customers with more favorable service fee arrangements.  

Cash Operating Expenses. Cash operating expenses were $11.1 million in the first half of 2008, compared to $12.4 million in the comparable period of 2007. The $1.3 million decrement reflected personnel reductions, particularly in corporate overhead functions. Excluding corporate overhead, cash operating expenses were $8.8 million in the first half of 2008, compared to $8.6 million in the comparable period of 2007.

Earnings Before Interest, Taxes, Deprecation and Amortization ("EBITDA"). The Company generated $17.4 million of EBITDA during the first half of 2008, compared to $14.5 million in the comparable period of 2007. Excluding corporate overhead expenses, the Company generated $19.6 million of EBITDA during the first half of 2008, compared to $18.2 million in the comparable period of 2007.

Depreciation and Amortization Expense. Depreciation and amortization expense in the first half of 2008 (excluding amortization of deferred finance costs and original issue discount on outstanding debt) was $6.4 million, compared to $5.7 million in the first half of 2007. The $0.7 million increase was largely attributable to additional depreciation recorded on capitalized software placed into service after the first half of 2007. Goodwill was neither amortized nor impaired in either period. However, during the six month period ended 30 June 2008, the Company made adjustments to reduce goodwill by $2.4 million to adjust accrued liabilities acquired in a previous acquisition, net of related income taxes. 

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 $0.7 million of non-cash compensation expense during the first half of 2008, compared to $0.9 million in the first half of 2007. The $0.2 million decrease reflected a reduction of 0.7 million 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 $5.4 million in the first half of 2008 was $0.3 million lower than the $5.7 million of interest expense incurred in the first half of 2007. The lower interest expense in 2008 was attributable to lower outstanding borrowings due to the recapitalization of the Company in December 2007, offset in part by (i) decreased interest capitalization in 2008, related to a substantial reduction of on-going software development costs and (ii) increased amortization in 2008 of original issue discount on debt.

Changes in Cash and Working Capital.  BSG's unrestricted cash balance at 30 June 2008 was $33.1 million, which was the same as the balance at 31 December 2007. The Company's working capital position (net of funded debt) at 30 June 2008 was $3.6 million, compared to $1.2 million at 31 December 2007. 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 2008, the Company incurred $1.2 million of capital expenditures, including disbursements for ongoing software development, purchases of telecommunications and computer equipment and capitalized interest.

Cash Flow for the Six Months Ended 30 June 2008

Cash flow from operating activities. Net cash provided by operating activities was $2.5 million during the first half of 2008. Net cash provided was principally attributable to $6.4 million in depreciation and amortization (excluding amortization of deferred finance costs and original issue discount on outstanding debt), a $3.3 million reduction in income taxes receivable, a $2.1 million increase in trade accounts payable and $1.6 million of net income, offset by a $7.0 million decrease in accounts payable related to customers and a $4.1 million decrease in accrued liabilities.

Cash flow from investing activities. Cash used in investing activities was $2.3 million, reflecting $1.2 million in capital expenditures and a $1.1 million increase in purchased receivables.

Cash flow from financing activities. Cash used in financing activities was $0.3 million during the first half of 2008, reflecting $8.1 million of principal payments on long-term debt, offset by a $7.9 million reduction in restricted cash. The restricted cash at December 31, 2007 included funds for which disposition was dependent upon the outcome of litigation settled during the first half of 2008.

  

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

c/o Evolution Securities Limited

100 Wood Street

London EC2V 7AN

United Kingdom

  

Billing Services Group Limited

Consolidated Balance Sheets

(In thousands, except shares)

	30 June  2008	31 December  2007
	(Unaudited)	(Audited)
Assets
Current assets:
Cash and cash equivalents	$ 33,072	$ 33,129
Restricted cash	-	7,858
Accounts receivable	20,362	20,664
Purchased receivables	21,025	19,932
Income tax receivable	-	3,414
Prepaid expenses and other current assets	1,688	649
Deferred taxes - current	2,730	2,534
Total current assets	78,877	88,180
Property, equipment and software	33,912	32,683
Less accumulated depreciation and amortization	12,472	10,387
Net property, equipment and software	21,440	22,296
Deferred finance costs, net of accumulated amortization of $175 and $10 at June 30, 2008 and December 31, 2007, respectively	1,171	1,336
Intangible assets, net of accumulated amortization of $37,302 and $32,981 at June 30, 2008 and December 31, 2007, respectively	56,473	60,794
Goodwill	37,706	40,063
Other assets	396	408
Total assets	$ 196,063	$ 213,077

Billing Services Group Limited

Consolidated Balance Sheets (continued)

(In thousands, except shares)

	30 June  2008	31 December  2007
	(Unaudited)	(Audited)
Liabilities and shareholders' equity
Current liabilities:
Trade accounts payable	$ 13,785	$ 11,665
Third-party payables	52,226	59,655
Accrued liabilities	9,265	15,701
Current portion of long-term debt	8,750	11,250
Total current liabilities	84,026	98,271
Long-term debt, net of current portion and unamortized original issue discount of $3,914 and $4,467 at June 30, 2008 and December 31, 2007, respectively	91,711	96,783
Deferred taxes - noncurrent	7,365	7,385
Other liabilities	7,701	7,470
Total liabilities	190,803	209,909
Commitments and contingencies
Shareholders' equity:
Common stock, $0.59446 par value, 350,000,000 shares authorized and 279,863,248 shares issued and outstanding	166,368	166,368
Additional paid-in capital (deficit)	(174,171)	(174,824)
Retained earnings	13,238	11,677
Accumulated other comprehensive loss	(175)	(53)
Total shareholders' equity	5,260	3,168
Total liabilities and shareholders' equity	$ 196,063	$ 213,077

See accompanying notes.

  Billing Services Group Limited

Consolidated Statements of Operations

(In thousands, except per share amounts)

	Six Months Ended 30 June
	2008	2007
	(Unaudited)	(Unaudited)
Operating revenues	$ 65,711	$ 64,195
Cost of services	37,294	37,350
Gross profit	28,417	26,845
Selling, general, and administrative expenses, excluding corporate office administrative expenses	8,773	8,615
Corporate office administrative expenses	2,286	3,766
EBITDA	17,358	14,464
Depreciation and amortization expense	6,405	5,796
Restructuring expense	2,358	-
Stock-based compensation expense	653	873
Operating income	7,942	7,795
Other income (expense):
Interest expense, net of $46 and $565  capitalized in 2008 and 2007, respectively	(5,418)	(5,729)
Settlement and mark-to-market of derivatives	(368)	-
Interest income	838	1,039
Other expense, net	(81)	(122)
Total other expense, net	(5,029)	(4,812)
Income from continuing operations before income taxes	2,913	2,983
Income tax expense	(1,352)	(1,340)
Income from continuing operations	1,561	1,643
Discontinued operations:
Income from operations of BSG Luxembourg (including tax benefit of $489 in 2007)	-	880
Net income	$  1,561	$ 2,523
Net income per basic and diluted share:
Continuing operations	$  0.006	$ 0.006
Discontinued operations	-	0.003
Net income per share	$ 0.006	$ 0.009
Weighted average shares outstanding	279,863	279,863

See accompanying notes.

Billing Services Group Limited

Consolidated Statements of Cash Flows

(In thousands)

	Six Months Ended 30 June
	2008	2007
	(Unaudited)	(Unaudited)
Operating activities
Net income	$ 1,561	$ 2,523
Less:  income from discontinued operations, net	-	(880)
Net income from continuing operations	1,561	1,643
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	2,085	1,408
Amortization of intangibles	4,321	4,333
Amortization of deferred finance costs	165	332
Amortization of original issue discount on debt	553	-
Stock-based compensation expense	653	873
Changes in operating assets and liabilities:
Decrease in accounts receivable	302	1,076
Decrease in income taxes receivable	3,262	-
Increase in other current assets and other assets	(1,027)	(982)
Increase in trade accounts payable	2,120	283
(Decrease) increase in third-party payables	(7,027)	3,263
Decrease in accrued liabilities	(4,052)	(2,257)
Provision for deferred taxes	(147)	(192)
Decrease in other liabilities	(242)	-
Net cash provided by operating activities	2,527	9,780
Investing activities
Purchase of VoiceLog	-	(1,335)
Purchase of VeriSign toll clearinghouse	-	(600)
Purchases of property, equipment and software, including $46 and $565 of capitalized interest in 2008 and 2007, respectively	(1,229)	(2,625)
Net (advances) receipts on purchased receivables	(1,093)	416
Net cash used in investing activities	(2,322)	(4,144)

  Billing Services Group Limited

Consolidated Statements of Cash Flows (continued)

(In thousands)

	Six Months Ended 30 June
	2008	2007
	(Unaudited)	(Unaudited)
Financing activities
Payments on long-term debt	(8,125)	(2,625)
Net receipt on BSG Luxembourg receivables	-	116
Restricted cash	7,858	-
Net cash used in financing activities	(267)	(2,509)
Cash flows provided by (used in) discontinued operations:
Net cash provided by operating activities	-	7,204
Net cash used in investing activities	-	(2,878)
Net cash used in financing activities	-	(3,018)
Effect of exchange rate changes on cash	-	318
Net cash provided by discontinued operations	-	1,626
Effect of exchange rate changes on cash	5	5
Net (decrease) increase in cash and cash equivalents	(57)	4,758
Cash and cash equivalents at beginning of year	33,129	41,881
Cash and cash equivalents at 30 June	$ 33,072	$ 46,639

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 the 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, warrants and instruments convertible into common stock. Diluted net income per share equals basic income per share because the exercisability of the outstanding stock options is based upon market conditions that have not been met as of 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 2008, the actual interest rate on the debt was 7.06%, reflecting a 90-day LIBOR rate of 2.81% plus a margin of 4.25%.

At 30 June 2008, the Company had in place interest rate swap arrangements for a notional amount of $120 million. Under the contracts, the Company will effectively pay fixed rates per annum of 3.91% to 4.48% on its loans, excluding the applicable interest margin on such loans.

 

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.

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, interest rates, foreign exchange rates, litigation, governmental regulation and supervision, seasonality, product introductions and acceptance, technological change, changes in industry practices, onetime 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.

ENDIR LELBFVVBEBBL