CKFR Checkfree Corp (MM)

CheckFree Announces Fiscal 2005 Second Quarter Results and Raises Full-Year Expectations ATLANTA, Jan. 20 /PRNewswire-FirstCall/ -- CheckFree Corporation (NASDAQ:CKFR) today announced second quarter revenue of $185.8 million, representing 24 percent growth over the same period last year. The Company's GAAP (Generally Accepted Accounting Principles) net income was $13.0 million, or $0.14 per share, and underlying net income was $33.7 million, or $0.36 per share. Free cash flow was $56.5 million for the quarter, as outlined in Attachment A. GAAP Results: Net income for the second quarter was $13.0 million, compared to a net loss of $1.9 million for the same quarter last year. Earnings per share were $0.14 for the second quarter of fiscal 2005, compared to a loss per share of $0.02 for the second quarter of last year. Net cash provided by operating activities was $65.8 million for the second quarter of fiscal 2005, compared to $41.4 million for the same period last year. Underlying Results: Underlying net income for the second quarter was $33.7 million, compared to $23.4 million for the same quarter of last year. Underlying earnings per share were $0.36 for the second quarter of fiscal 2005, compared to $0.25 for the second quarter of last year. Underlying net income and earnings per share exclude the amortization of acquisition-related intangible assets and related tax benefits for the second quarters of fiscal 2004 and 2005, and for the second quarter of fiscal 2004, also primarily exclude the cost of early redemption of our convertible debt and related tax benefits. A reconciliation of CheckFree's underlying results to its GAAP results is included in Attachment A. "Each business delivered solid, focused performance this quarter, putting us ahead of our expectations," said Pete Kight, CheckFree's Chairman and Chief Executive Officer. "The Electronic Commerce division experienced steady growth in transactions processed. We saw continued portfolio growth in the Investment Services division as the separately managed accounts industry finds traction within the domestic financial markets, and we delivered better-than-expected license sales in our Software business." "We believe we are well-positioned for continued solid execution for the current fiscal year, which has allowed us to increase our projected earnings for the full year," Kight concluded. Second Quarter Highlights The Company reported that its Electronic Commerce division processed 219.4 million transactions for the quarter, a 7 percent increase over the previous quarter, and delivered 32.8 million electronic bills, an increase of 11 percent over the previous quarter. The Company reported more than 1.7 million portfolios under management in its Investment Services division. Refer to Attachment B for details on the financial performance of CheckFree's divisions in the second quarter of fiscal 2005, and Attachment C for electronic billing and payment metrics. Financial Outlook for the Third Quarter and the Fiscal Year "For the third quarter of fiscal 2005, we expect revenue in the range of $187 to $192 million, and GAAP earnings per share in the range of $0.12 to $0.14," said CheckFree Chief Financial Officer, David Mangum. "This equates to underlying earnings per share in the range of $0.34 to $0.36. We expect sequential quarterly transaction growth for the upcoming quarter to be in the range of 4 to 7 percent." "Based on our strong performance through the first two quarters and our outlook for the remainder of the year, we have increased our full-year expectations for earnings per share to $0.46 to $0.50 on a GAAP basis, or $1.34 to $1.38 on an underlying basis," he continued. "These expectations reflect an outlook for continued growth in electronic billing and payment transactions, solid performance from our Investment Services and Software businesses, and increased investment spending in all three businesses." "We now expect to generate more than $160 million in free cash flow for the full year, exceeding our earlier expectations," Mangum concluded. The difference between GAAP and underlying earnings expectations for fiscal 2005 and the third quarter of fiscal 2005 is due to expected acquisition-related intangible amortization expense and related tax benefits. Conference Call on the Internet CheckFree will broadcast its second quarter conference call at 5:00 p.m. (ET) today to review its financial results for the second quarter ended December 31, 2004, and its expectations for the third quarter of fiscal 2005 and for fiscal 2005. To phone into the conference call, dial 1-877-232-1067 anytime after 4:45 p.m. (ET) and ask for the CheckFree Conference Call. CheckFree will also broadcast the call on the Internet. The live conference call will be accessible through the Investor Center section of the CheckFree corporate Web site at http://www.checkfreecorp.com/. A digital replay of the call will be available on the same Web site after 7:00 p.m. (ET). 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 their customers the convenience of receiving and paying their household bills online or in person through retail outlets. CheckFree Investment Services provides a broad range of investment management solutions and outsourced services to thousands of financial services organizations, which manage more than $1 trillion in assets. CheckFree Software develops, markets and supports software applications that are used by financial institutions to process more than two-thirds of the 10 billion Automated Clearing House transactions in the United States. The division also provides global trade processing, reconciliation, financial messaging, compliance and electronic billing and statement software to hundreds of organizations across the globe. 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 in this document regarding forecasts and expectations of revenue and earnings per share for the third quarter of fiscal 2005, earnings per share and free cash flow for fiscal 2005 as a whole, the performance of each of our divisions in the third quarter of fiscal 2005 and for fiscal 2005 as a whole, and sequential transaction growth in the third quarter of fiscal 2005 (paragraphs 4, 5, 8, 9, 10 and 11). 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, 2004 (filed September 3, 2004) and Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (filed November 9, 2004). 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 document 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 Six Months Ended December 31, December 31, 2004 2003 2004 2003 Revenues: Processing and servicing $164,188 $131,647 $323,030 $255,892 License fees 7,655 4,716 13,529 9,678 Maintenance fees 7,456 7,412 14,811 14,113 Other 6,457 6,161 12,219 11,517 Total revenues 185,756 149,936 363,589 291,200 Expenses: Cost of processing, servicing and support 72,688 60,798 148,050 120,086 Research and development 19,329 16,102 39,552 31,005 Sales and marketing 16,282 13,206 30,508 25,531 General and administrative 13,430 11,672 28,465 23,195 Depreciation and amortization 43,643 42,384 87,660 92,997 In-process research and development - 324 - 324 Total expenses 165,372 144,486 334,235 293,138 Income (loss) from operations 20,384 5,450 29,354 (1,938) Equity in net loss of joint venture (700) - (1,347) - Interest, net 1,490 (7,964) 3,186 (9,588) Income (loss) before income taxes 21,174 (2,514) 31,193 (11,526) Income tax expense (benefit) 8,131 (618) 11,943 (2,961) Net income (loss) $13,043 $(1,896) $19,250 $(8,565) Basic income (loss) per share: Net income (loss) $0.14 $(0.02) $0.21 $(0.10) Weighted average number of shares 90,545 89,624 90,482 89,543 Diluted income (loss) per share: Net income (loss) $0.14 $(0.02) $0.21 $(0.10) Weighted average number of shares 93,019 89,624 92,764 89,543 CHECKFREE CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) (In thousands) December 31, June 30, 2004 2004 Current assets: Cash, cash equivalents and investments $284,301 $208,029 Settlement assets 84,915 82,520 Accounts receivable, net 112,202 111,849 Prepaid expenses and other assets 25,748 14,727 Deferred income taxes 20,694 49,129 Total current assets 527,860 466,254 Property and equipment, net 87,430 91,912 Capitalized software and intangible assets, net 851,809 917,543 Investments 74,951 68,344 Other noncurrent assets 4,407 4,396 Deferred income taxes 10,094 - Investment in joint venture 948 483 Total assets $1,557,499 $1,548,932 Current liabilities: Accounts payable, accrued liabilities and other $74,994 $83,637 Settlement obligations 83,578 82,611 Deferred revenues 39,852 36,193 Total current liabilities 198,424 202,441 Accrued rent and other 4,977 4,313 Deferred income taxes - 17,492 Capital leases and long-term obligations, less current portion 25,373 25,504 Net stockholders' equity 1,328,725 1,299,182 Total liabilities and stockholders' equity $1,557,499 $1,548,932 Attachment A Calculation of Free Cash Flow (Unaudited) (In millions) Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 Net cash provided by operating activities $65.8 $41.4 $97.5 $68.4 Excluding: Net change in settlement accounts (0.1) - 1.4 - Less: Capital expenditures (9.2) (3.7) (14.1) (9.1) Free cash flow $56.5 $37.7 $84.8 $59.3 Additional Information: Net cash provided by (used in) investing activities $(8.7) $48.8 $(40.0) $(0.4) Net cash provided by (used in) financing activities $3.4 $(171.1) $4.2 $(170.7) Use of Non-GAAP Financial Information The Company supplements its reporting of cash flow information determined in accordance with GAAP by using "free cash flow" in this earnings release as a measure to evaluate its liquidity. The Company defines free cash flow as GAAP net cash provided by operating activities, exclusive of the net change in settlement accounts and less capital expenditures. The Company believes free cash flow provides useful information to management and investors in understanding its financial results and assessing its prospects for future performance. CheckFree also uses free cash flow as a factor in determining long-term incentive compensation for senior management. The Company excludes the net change in settlement accounts from free cash flow because it believes this facilitates management's and investors' ability to analyze operating cash flow trends. In connection with its walk-in bill payment business, the Company's balance sheet reflects settlement assets and settlement obligations. The settlement assets represent payment receipts in transit to the Company 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 the Company's liquidity, and thus, CheckFree excludes the net change in settlement accounts from free cash flow. As a technology company, CheckFree makes significant capital expenditures in order to update its technology and to remain competitive. The Company's free cash flow reflects the amount of cash it generated that remains, after it has 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. Free cash flow does not solely represent residual cash flow available for discretionary expenditures, as certain of CheckFree's 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 CheckFree's Annual Report on Form 10-K for the fiscal year ended June 30, 2004, which was filed with the Securities and Exchange Commission on September 3, 2004 and in CheckFree's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, which was filed with the Securities and Exchange Commission on November 9, 2004. 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 Income Net (Loss) to Underlying Net Income and Earnings (Loss) Per Share (Unaudited) (In thousands, except per share data) Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 Total revenues - GAAP and underlying $185,756 $149,936 $363,589 $291,200 Net income (loss) per GAAP $13,043 $(1,896) $19,250 $(8,565) Amortization of acquisition- related intangible assets 33,211 32,099 66,426 72,593 Write off in-process research and development - 324 - 324 Call premium and write off of unamortized issuance costs for convertible notes - 7,219 - 7,219 Tax benefit of underlying adjustments (12,589) (14,388) (25,157) (28,854) Underlying net income $33,665 $23,358 $60,519 $42,717 GAAP basic weighted average shares outstanding 90,545 89,624 90,482 89,543 GAAP impact of dilutive options and warrants 2,474 - 2,282 - GAAP diluted weighted average shares outstanding 93,019 89,624 92,764 89,543 Underlying basic weighted average shares outstanding 90,545 89,624 90,482 89,543 Underlying impact of dilutive options and warrants 2,474 2,000 2,282 1,962 Underlying diluted weighted average shares outstanding 93,019 91,624 92,764 91,505 GAAP basic earnings (loss) per share $0.14 $(0.02) $0.21 $(0.10) GAAP diluted earnings (loss) per share $0.14 $(0.02) $0.21 $(0.10) Underlying basic earnings per share $0.37 $0.26 $0.67 $0.48 Underlying diluted earnings per share $0.36 $0.25 $0.65 $0.47 Use of Non-GAAP Financial Information CheckFree supplements its reporting of revenue, 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 revenue or expense enhance the company's evaluation of its performance, and are not pertinent to day to day operational decision making in the business. Therefore, CheckFree excludes 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, charges resulting from warrants issued to third parties, and charges associated with reorganization activities, all offset by the cumulative tax impact of these charges. CheckFree excludes these items in order to more clearly focus on the factors it believes are pertinent to the daily management of the company's operations, and management uses underlying results to evaluate the impact of operational business decisions. CheckFree regularly reports underlying results to its Chairman and Chief Executive Officer, the company's chief operating decision maker, who uses this information in allocating resources to CheckFree's various business units. Additionally, as CheckFree rewards its management for their decisions that increase revenue and decrease controllable costs, incentive compensation for management, and uses underlying revenue, underlying net income (loss) and underlying earnings (loss) per share as factors in determining long- term incentive compensation for management. Because CheckFree utilizes underlying financial results in the management of its business and to determine incentive compensation for management, the company believes this supplemental information is useful to investors for their independent evaluation and understanding of the performance of the company's management and its core business performance. CheckFree's underlying revenue, 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, revenue, income (loss) from operations, net income (loss) or earnings (loss) per share or any other amount determined in accordance with GAAP. CheckFree's measures of underlying revenue, 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 Six Months Ended December 31, December 31, 2004 2003 2004 2003 Revenues: Processing and servicing $164,188 $131,647 $323,030 $255,892 License fees 7,655 4,716 13,529 9,678 Maintenance fees 7,456 7,412 14,811 14,113 Other 6,457 6,161 12,219 11,517 Total revenues 185,756 149,936 363,589 291,200 Expenses: Cost of processing, servicing and support 72,688 60,798 148,050 120,086 Research and development 19,329 16,102 39,552 31,005 Sales and marketing 16,282 13,206 30,508 25,531 General and administrative 13,430 11,672 28,465 23,195 Depreciation and amortization 10,432 10,285 21,234 20,404 Total expenses 132,161 112,063 267,809 220,221 Income from operations 53,595 37,873 95,780 70,979 Equity in net loss of joint venture (700) - (1,347) - Interest, net 1,490 (745) 3,186 (2,369) Income before income taxes 54,385 37,128 97,619 68,610 Income tax expense 20,720 13,770 37,100 25,893 Net income $33,665 $23,358 $60,519 $42,717 Basic income per share: Net income $0.37 $0.26 $0.67 $0.48 Equivalent number of shares 90,545 89,624 90,482 89,543 Diluted income per share: Net income $0.36 $0.25 $0.65 $0.47 Equivalent number of shares 93,019 91,624 92,764 91,505 Attachment B Reconciliation of GAAP Results to Underlying Results by Segment (Unaudited) (In thousands) Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 Electronic Commerce: Total revenues - GAAP and underlying $142,108 $112,488 $280,315 $219,043 Operating income per GAAP $18,320 $7,912 $32,708 $2,313 Amortization of acquisition related intangible assets 32,559 31,049 65,122 70,570 Underlying operating income $50,879 $38,961 $97,830 $72,883 Investment Services: Total revenues - GAAP and underlying $23,972 $21,465 $46,815 $41,758 Operating income per GAAP $5,473 $4,377 $7,882 $9,063 Amortization of acquisition related intangible assets 151 231 302 463 Underlying operating income $5,624 $4,608 $8,184 $9,526 Software: Total revenues - GAAP and underlying $19,676 $15,983 $36,459 $30,399 Operating income per GAAP $6,168 $2,422 $6,300 $3,909 Amortization of acquisition related intangible assets 501 819 1,002 1,560 Write off in-process research and development - 324 - 324 Underlying operating income $6,669 $3,565 $7,302 $5,793 Corporate: Operating loss per GAAP and underlying $(9,577) $(9,261) $(17,536) $(17,223) Attachment C Electronic Billing and Payment Metrics (In millions, except revenue/transaction and percentages) Quarter Ended 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03 Transactions Full Service Revenue $102.4 $99.1 $96.2 $94.0 $91.8 Active Subscribers(1) 6.9 6.4 5.9 5.5 5.0 Transactions 142.9 133.5 123.9 115.5 106.1 Revenue/Transaction $0.72 $0.74 $0.78 $0.81 $0.87 Payment Services(2) Revenue $31.3 $30.5 $14.0 $12.8 $12.0 Transactions 76.5 72.3 41.3 36.7 33.1 Revenue/Transaction $0.41 $0.42 $0.34 $0.35 $0.36 Total 219.4 205.8 165.2 152.2 139.2 Sequential Quarterly Growth 7% 25% 8% 9% 10% Other Revenue(3) $8.4 $8.6 $8.3 $8.4 $8.7 e-Bill Delivery Electronic bills distributed 32.8 29.6 25.9 22.5 18.5 Quarterly sequential growth 11% 14% 15% 22% 26% Electronic Rate Electronic payment rate 83% 83% 79% 78% 78% (1) "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. (2) Payment Services includes walk-in bill payment results beginning June 23, 2004. (3) Other revenue includes Health and Fitness, Professional Services and Stored Value Products. DATASOURCE: CheckFree Corporation CONTACT: Media relations, Judy DeRango Wicks, +1-678-375-1595, or , Investor relations, Tina Moore, +1-678-375-1278, or , both of CheckFree Corporation Web site: http://www.checkfreecorp.com/

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