ATLANTA, Oct. 24 /PRNewswire-FirstCall/ -- CheckFree Corporation
(Nasdaq: CKFR) today announced first quarter revenue of $228.6 million, a 7
percent increase over the same period last year. The Company's Generally
Accepted Accounting Principles (GAAP) net income for the quarter was $31.4
million, or $0.34 per share, and underlying net income was $38.6 million, or
$0.42 per share. Free cash flow was $37.1 million for the first quarter as
outlined in Attachment A.
GAAP Results: Net income for the first quarter of fiscal 2007 was $31.4
million, compared to net income of $26.4 million for the same quarter last
year. Earnings per share were $0.34 for the first quarter of fiscal 2007,
compared to earnings per share of $0.28 for the first quarter of last year.
Net cash provided by operating activities was $47.6 million for the first
quarter of fiscal 2007, compared to $43.5 million for the same period last
year.
Underlying Results: Underlying net income for the first quarter was $38.6
million, compared to $43.1 million for the same quarter of last year.
Underlying earnings per share were $0.42 for the first quarter of fiscal 2007,
compared to $0.46 per share for the first quarter of last year.
Underlying net income and earnings per share for the first quarter of
fiscal 2007 exclude the amortization of acquisition-related intangible assets,
the SFAS 123(R) impact of options issued prior to July 1, 2004 and the tax
benefits of both. Underlying net income and earnings per share for the first
quarter of fiscal 2006 exclude the amortization of acquisition-related
intangible assets; exclude the SFAS 123(R) impact of options issued prior to
July 1, 2004; include the historical effect of discontinued operations on
revenue and expense, resulting from a divestiture in the third quarter of
fiscal 2006; and exclude the combined net tax benefits from each of the
foregoing. A reconciliation of CheckFree's underlying results to its GAAP
results is included in Attachment A.
"CheckFree's businesses delivered good results for the quarter," said Pete
Kight, CheckFree Chairman and Chief Executive Officer. "Electronic billing and
payment transactions for consumer service providers (CSP) grew at expected
rates, portfolios under management continued to increase and software license
revenues exceeded our target. This quarter showed a healthy balance in growth
across all three business lines."
First Quarter Highlights
For the first quarter of fiscal 2007, the Company reported that the
Electronic Commerce Division processed 311.7 million transactions. CSP
transactions at banks, credit unions and other financial institutions
increased 4 percent sequentially and non-CSP transactions grew 2 percent,
reflecting an overall sequential transaction growth rate of 3 percent. During
the first quarter, the Company delivered 51.8 million electronic bills, a 3
percent sequential quarterly increase.
CheckFree Investment Services reported more than 2.3 million portfolios
under management, compared to 2.0 million in the first quarter of fiscal 2006,
representing a 15 percent year-over-year increase. The Software Division
reported results that exceeded expectations. Refer to Attachment B for details
on the financial performance of CheckFree's divisions in the first quarter of
fiscal 2007, and Attachment C for electronic billing and payment metrics.
Financial Outlook for the Second Quarter
"For the second quarter of the fiscal year, we expect revenue between $230
million and $235 million, with GAAP earnings per share in the range of $0.33
to $0.35, which equates to underlying earnings per share in the range of $0.40
to $0.42," said David Mangum, CheckFree's Chief Financial Officer.
"In the Electronic Commerce Division for the second quarter, we expect
sequential transaction growth of 5 to 7 percent in our CSP channel and a
modest decline in non-CSP transactions," Mangum continued. "We expect
portfolio growth in Investment Services and revenue performance in our
Software Division to be consistent with our first quarter results."
The difference between GAAP and underlying earnings expectations for the
second quarter of fiscal 2007 is due to expected acquisition-related
intangible amortization expenses, the SFAS 123(R) impact of options issued
prior to July 1, 2004, and the combined tax benefits from each of the
foregoing.
The Company also announced that it repurchased more than 2.6 million
shares of its common stock for approximately $100 million during the first
quarter of fiscal 2007.
Conference Call on the Internet
CheckFree will broadcast its conference call at 5 p.m. (EDT) today to
review financial results for the first quarter and its expectations for the
second quarter and for fiscal 2007. Participants should dial 1-877-232-1067
any time after 4:45 p.m. (EDT) and ask for the CheckFree conference call. The
live conference call will be accessible through the Investor Center section of
the CheckFree website at http://www.checkfreecorp.com. A digital replay of the
call will be available on the CheckFree website after 7 p.m. (EDT).
About CheckFree (http://www.checkfreecorp.com)
Founded in 1981, CheckFree Corporation (Nasdaq: CKFR) provides financial
electronic commerce services and products to organizations around the world.
CheckFree Electronic Commerce solutions enable thousands of financial services
providers and billers to offer the convenience of receiving and paying
household bills online, via phone or in person through retail outlets.
CheckFree Investment Services provides a broad range of investment management
solutions and outsourced services to hundreds of financial services
organizations, which manage about $1.5 trillion in assets. CheckFree Software
develops, markets and supports payment processing solutions that are used by
financial institutions to process more than two-thirds of the 14 billion
Automated Clearing House transactions in the United States, and supports
reconciliation, exception management, risk management, transaction process
management, corporate actions processing, and compliance within thousands of
organizations worldwide.
Certain of the Company's statements in this press release are not purely
historical, and as such are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These include statements
regarding management's intentions, plans, beliefs, expectations or projections
of the future, and include statements regarding forecasts and expectations of,
revenue for the second quarter of fiscal 2007, earnings per share for the
second quarter of fiscal 2007, sequential transaction growth and the general
performance of the Company's divisions in the second quarter of fiscal 2007
(paragraphs 8, 9, and 10). Forward-looking statements involve risks and
uncertainties, including without limitation, the various risks inherent in the
Company's business, and other risks and uncertainties detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the year
ended June 30, 2006 (filed September 8, 2006). One or more of these factors
have affected, and could in the future affect the Company's business and
financial results in future periods, and could cause actual results to differ
materially from plans and projections. There can be no assurance that the
forward-looking statements made in this press release will prove to be
accurate, and issuance of such forward-looking statements should not be
regarded as a representation by the Company, or any other person, that the
objectives and plans of the Company will be achieved. All forward-looking
statements made in this press release are based on information presently
available to management, and the Company assumes no obligation to update any
forward-looking statements.
CHECKFREE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended
September 30,
2006 2005
Revenues:
Processing and servicing $195,478 $184,640
License fees 9,074 7,558
Maintenance fees 11,530 9,663
Professional fees 12,537 11,832
Total revenues 228,619 213,693
Expenses:
Cost of processing, servicing and support 92,793 80,168
Research and development 26,687 23,057
Sales and marketing 21,203 18,422
General and administrative 17,685 16,267
Depreciation and amortization 21,805 35,472
Total expenses 180,173 173,386
Income from continuing operations 48,446 40,307
Equity in net loss of joint venture (458) (667)
Interest income, net 3,294 2,456
Income from continuing operations before
income taxes 51,282 42,096
Income tax expense 19,916 16,115
Income from continuing operations 31,366 25,981
Income from discontinued operations before
income taxes - 608
Income tax expense on discontinued operations - 232
Income from discontinued operations - 376
Net income $31,366 $26,357
Basic income per share:
Income per share from continuing operations $0.35 $0.29
Income per share from discontinued operations - -
Total basic income per share $0.35 $0.29
Weighted average number of shares 89,962 90,578
Diluted income per share:
Income per share from continuing operations $0.34 $0.28
Income per share from discontinued operations - -
Total diluted income per share $0.34 $0.28
Weighted average number of shares 92,776 $92,818
CHECKFREE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In thousands)
September 30, June 30,
2006 2006
Current assets:
Cash, cash equivalents and investments $251,895 $317,613
Settlement assets 144,996 107,128
Accounts receivable, net 156,391 146,605
Prepaid expenses and other assets 36,807 39,810
Deferred income taxes 7,304 7,311
Total current assets 597,393 618,467
Property and equipment, net 116,883 100,217
Intangible assets, net 892,101 906,767
Investments 79,043 78,559
Other noncurrent assets 9,326 8,779
Deferred income taxes 45,645 45,240
Total assets $1,740,391 $1,758,029
Current liabilities:
Accounts payable, accrued liabilities
and other $89,275 $92,100
Settlement obligations 140,526 103,732
Deferred revenue 38,701 40,301
Total current liabilities 268,502 236,133
Accrued rent and other 3,871 3,844
Deferred income taxes 2,389 2,964
Deferred revenue 3,108 3,021
Capital leases and long-term obligations,
less current portion 39,222 28,432
Total stockholders' equity 1,423,299 1,483,635
Total liabilities and stockholders'
equity $1,740,391 $1,758,029
Attachment A
Calculation of Free Cash Flow
(Unaudited)
(In thousands)
Three Months Ended
September 30,
2006 2005
Net cash provided by operating activities $47,564 $43,475
Excluding: Net change in settlement accounts 1,074 4,908
Less: Capital expenditures (12,099) (7,166)
Plus: Data center reimbursements 526 -
Free cash flow $37,065 $41,217
Additional Information:
Cash provided by investing activities $58,583 $1,242
Cash (used in) provided by financing activities $(97,047) $5,190
Use of Non-GAAP Financial Information
We supplement our reporting of cash flow information determined in
accordance with Generally Accepted Accounting Principles in the United States
of America ("GAAP") by using "free cash flow" in this earnings release as a
measure to evaluate our liquidity. We define free cash flow as net cash
provided by operating activities, exclusive of the net change in settlement
accounts and less capital expenditures, plus data center reimbursements. We
believe free cash flow provides useful information to management and investors
in understanding our financial results and assessing our prospects for future
performance. We also use free cash flow as a factor in determining long-term
incentive compensation for senior management.
We exclude the net change in settlement accounts from free cash flow
because we believe this facilitates management's and investors' ability to
analyze operating cash flow trends. In connection with our walk-in payment
business, our consolidated balance sheet reflects settlement assets and
settlement obligations. The settlement assets represent payment receipts in
transit to us from agents, and the settlement obligations represent scheduled
but unpaid payments due to billers. Balances in settlement accounts fluctuate
daily based on deposit timing and payment transaction volume. These timing
differences are not reflective of our liquidity, and thus, we exclude the net
change in settlement accounts from free cash flow.
As a technology company, we make significant capital expenditures in order
to update our technology and to remain competitive. Our free cash flow
reflects the amount of cash we generated that remains, after we have met those
operational needs, for the evaluation and execution of strategic initiatives
such as acquisitions, stock and/or debt repurchases and other investing and
financing activities, including servicing additional debt obligations. During
the fourth quarter of fiscal 2006, we entered into a credit facility to
finance the construction of data centers. Amounts we spend to construct these
data centers are included in our capital expenditures, but will be fully
reimbursed by the credit facility. The reimbursements from the credit facility
are added to our free cash flow measure because these expenditures do not
impact our overall liquidity. The data center reimbursements line represents a
change to our definition of free cash flow as of the quarter ended June 30,
2006.
Free cash flow does not solely represent residual cash flow available for
discretionary expenditures, as certain of our non-discretionary obligations
are also funded out of free cash flow. These consist primarily of payments on
capital leases and other long-term commitments, if any, as reflected in the
table entitled "Contractual Obligations" in the "Liquidity and Capital
Resources" section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in our Annual Report on Form
10-K for the fiscal year ended June 30, 2006, which we filed with the
Securities and Exchange Commission on September 8, 2006.
The Company's free cash flow should be considered in addition to, and not
as a substitute for, net cash provided by operating activities or any other
amount determined in accordance with GAAP. Further, CheckFree's measure of
free cash flow may not be comparable to similarly titled measures reported by
other companies.
Attachment A (continued)
Reconciliation of GAAP Net Income to Underlying Net Income
and Earnings Per Share
(Unaudited)
(In thousands, except per share data)
Three Months Ended
September 30,
2006 2005
Total revenues - GAAP $228,619 $213,693
Impact of discontinued operations (1) - 2,064
Total revenues - underlying $228,619 $215,757
Net income from continuing operations
per GAAP $31,366 $ 25,981
Impact of discontinued operations (1) - 376
Net income per GAAP 31,366 26,357
Amortization of acquisition-related
intangible assets 10,967 25,542
SFAS 123(R) - Stock options issued
before July 1, 2004 704 1,356
Tax benefit of underlying adjustments (4,478) (10,109)
Underlying net income $38,559 $ 43,146
GAAP and underlying basic weighted
average shares outstanding 89,962 90,578
GAAP and underlying impact of dilutive
options and warrants 2,814 2,240
GAAP and underlying diluted weighted
average shares outstanding 92,776 92,818
GAAP basic earnings per share $0.35 $0.29
GAAP diluted earnings per share $0.34 $0.28
Underlying basic earnings per share $0.43 $0.48
Underlying diluted earnings per share $0.42 $0.46
(1)See page 9, note (2)
Use of Non-GAAP Financial Information
We supplement our reporting of total revenues, income (loss) from
operations, net income (loss) and earnings (loss) per share information
determined in accordance with GAAP by using "underlying revenue," "underlying
income (loss) from operations," "underlying net income (loss)" and "underlying
earnings (loss) per share" in this earnings release. Management believes that
certain non-cash adjustments to revenues or expenses enhance our evaluation of
our performance, and are not pertinent to day-to-day operational decision
making in the business. Therefore, we exclude these items from GAAP revenue,
income (loss) from operations, net income (loss) and earnings (loss) per share
in calculating underlying revenue, underlying income (loss) from operations,
underlying net income (loss) and underlying earnings (loss) per share.
Examples of such non-cash charges may include, but not be limited to,
intangible asset amortization expense and in-process research and development
costs associated with acquisitions, charges associated with the impairment of
intangible assets, the impact of discontinued operations, charges resulting
from warrants issued to third parties, and charges associated with
reorganization activities, all offset by the cumulative tax impact of these
charges. We exclude these items in order to more clearly focus on the factors
we believe are pertinent to the daily management of our operations, and our
management uses underlying results to evaluate the impact of operational
business decisions. We regularly report underlying results to our Chairman and
Chief Executive Officer, our chief operating decision maker, who uses this
information in allocating resources to our various business units.
Additionally, as we reward our management for their decisions that increase
revenues and decrease controllable costs, we use underlying revenues and
underlying income (loss) from operations as factors in determining short-term
incentive compensation for management, and use underlying revenues, underlying
net income (loss) and underlying earnings (loss) per share as factors in
determining long-term incentive compensation for management.
Because we utilize underlying financial results in the management of our
business and to determine incentive compensation for management, we believe
this supplemental information is useful to investors for their independent
evaluation and understanding of the performance of our management and our core
business performance. Our underlying revenues, underlying income (loss) from
operations, underlying net income (loss) and underlying earnings (loss) per
share should be considered in addition to, and not as a substitute for,
revenues, income (loss) from operations, net income (loss) or earnings (loss)
per share or any other amount determined in accordance with GAAP. Our measures
of underlying revenues, underlying income (loss) from operations, underlying
net income (loss) and underlying earnings (loss) per share reflect
management's judgment of particular items, and may not be comparable to
similarly titled measures reported by other companies.
Attachment A (continued)
CHECKFREE CORPORATION AND SUBSIDIARIES
Supplemental Underlying Consolidated Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended
September 30,
2006 2005
Revenues:
Processing and servicing $195,478 $186,624
License fees 9,074 7,558
Maintenance fees 11,530 9,670
Other 12,537 11,905
Total revenues 228,619 215,757
Expenses:
Cost of processing, servicing and support 92,622 79,927
Research and development 26,480 23,215
Sales and marketing 21,082 18,372
General and administrative 17,480 16,292
Depreciation and amortization 10,838 10,138
Total expenses 168,502 147,944
Income from operations 60,117 67,813
Equity in net loss of joint venture (458) (667)
Interest income, net 3,294 2,456
Income before income taxes 62,953 69,602
Income tax expense 24,394 26,456
Net income $ 38,559 $43,146
Basic income per share:
Net income $0.43 $0.48
Weighted average number of shares 89,962 90,578
Diluted income per share:
Net income $0.42 $0.46
Weighted average number of shares 92,776 92,818
Attachment B
Reconciliation of GAAP Results to Underlying Results by Segment
(Unaudited)
(In thousands)
Three Months Ended
September 30,
2006 2005
Electronic Commerce:
Total revenues - GAAP and underlying $171,029 $163,451
Operating income - GAAP $49,684 $43,913
Amortization of acquisition-related
intangible assets 9,627 23,575
SFAS 123(R) - Stock options issued
before July 1, 2004(1) 512 985
Underlying operating income $59,823 $68,473
Investment Services:
Total revenues - GAAP $29,622 $24,357
Impact of discontinued operations(2) - 2,064
Total revenues - underlying $29,622 $26,421
Operating income - GAAP $ 5,014 $3,338
Amortization of acquisition-related
intangible assets 484 313
SFAS 123(R) - Stock options issued
before July 1, 2004(1) 72 139
Impact of discontinued operations(2) - 608
Underlying operating income $ 5,570 $4,398
Software:
Total revenues - GAAP and underlying $27,968 $25,885
Operating income - GAAP $ 5,493 $ 3,451
Amortization of acquisition-related
intangible assets 856 1,654
SFAS 123(R) - Stock options issued
before July 1, 2004(1) 31 60
Underlying operating income $ 6,380 $ 5,165
Corporate:
Operating loss - GAAP $(11,745) $(10,395)
SFAS 123(R) - Stock options issued
before July 1, 2004(1) 89 172
Underlying operating loss $(11,656) $(10,223)
(1) At the beginning of fiscal 2005, we implemented a new long-term
incentive compensation philosophy, which significantly reduced
overall participation and focused on restricted stock with limited
stock options. As a result, we recorded the cost of restricted stock
throughout fiscal 2005 in both underlying and GAAP results. In fiscal
2006, we have adopted SFAS 123(R), and are consequently recording all
long-term incentive grants, both restricted stock and options, as an
expense to both underlying and GAAP results. The adjustment from GAAP
to underlying operating results in the table above reflects the SFAS
123(R) charge associated with options granted prior to July 1, 2004
under our previous compensation philosophy, which were originally
accounted for utilizing APB 25.
(2) In the third quarter ended March 31, 2006, the divestiture of our M-
Solutions business, a component of our Investment Services segment,
created a unique situation for our presentation of underlying results
versus GAAP results. SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," requires us to report the results of
operations from the disposed business, including any gain or loss on
the sale, as an income statement item separately captioned "earnings
from discontinued operations" on our GAAP basis unaudited condensed
Statements of Operations. This treatment is required for all periods
presented, not just the period in which the sale took place. In
contrast, for purposes of our underlying results, we have included
the results of the M-Solutions business for the prior period
presented.
Attachment C
Electronic Billing and Payment Metrics
(in millions, except revenue/transaction and percentages)
Quarter Ended
9/30/2006 6/30/2006 3/31/2006 12/31/2005 9/30/2005
Transactions
CSP:
Revenue $114.2 $111.8 $113.8 $120.5 $122.7
Revenue / Transaction $0.48 $0.49 $0.52 $0.60 $0.64
Transactions 235.7 227.5 217.3 199.9 190.3
Sequential Quarterly Growth 4% 5% 9% 5% 11%
Non-CSP:
Revenue $36.2 $34.4 $36.0 $24.4 $24.3
Revenue / Transaction $0.48 $0.46 $0.47 $0.34 $0.32
Transactions 76.0 74.7 76.0 70.8 75.7
Sequential Quarterly Growth 2% -2% 7% -6% 3%
Total:
Revenue $150.4 $146.2 $149.8 $144.9 $147.0
Transactions 311.7 302.2 293.3 270.7 266.0
Sequential Quarterly Growth 3% 3% 8% 2% 9%
e-Bill Delivery
Revenue $8.5 $8.0 $7.4 $7.2 $6.8
Revenue / e-Bill $0.16 $0.16 $0.16 $0.16 $0.16
e-Bills Delivered 51.8 50.0 46.7 45.2 42.7
Sequential Quarterly Growth 3% 7% 3% 6% 4%
Other EC Revenue(1) $12.1 $12.3 $12.2 $11.2 $9.7
Other Performance Metrics
Active Full Service
Subscribers(2) 10.5 10.0(3) 9.7 9.0 8.8
(1) Other revenue includes Health and Fitness, Professional Services and
Stored Value Products.
(2) "Active" refers to subscribers who have viewed or paid a bill in the
last 90 days at a Consumer Service Provider that outsources
essentially all of its electronic billing and payment (EBP) functions
to CheckFree.
(3) Adjusted to correct previously reported number of
10.3.
SOURCE CheckFree Corporation
CONTACT: Media relations, Judy DeRango Wicks, +1-678-375-1595, or
jdwicks@checkfree.com, or Investor relations, Tina Moore, +1-678-375-1278, or
tmoore@checkfree.com, both of CheckFree Corporation/
/Web site: http://www.checkfreecorp.com
(CKFR)
