CKFR Checkfree Corp (MM)

ATLANTA, Aug. 3 /PRNewswire-FirstCall/ -- CheckFree Corporation (NASDAQ:CKFR) today announced fourth quarter revenue of $203.0 million, representing 27 percent growth over the same period last year. The Company's GAAP (Generally Accepted Accounting Principles) net income for the quarter was $11.9 million, or $0.13 per share, and underlying net income was $36.5 million, or $0.39 per share. CheckFree reported consolidated revenue of $757.8 million for fiscal 2005, representing 25 percent growth over fiscal 2004. For the year, the Company's GAAP net income was $46.8 million, or $0.50 per share, and underlying net income was $133.0 million, or $1.43 per share. Free cash flow was $37.4 million for the fourth quarter, and $172.0 million for the year as outlined in Attachment A. GAAP Results: Net income for the fourth quarter was $11.9 million, compared to net income of $11.4 million for the same quarter last year. Earnings per share were $0.13 for the fourth quarter of fiscal 2005, compared to earnings per share of $0.12 for the fourth quarter of last year. For fiscal 2005, net income was $46.8 million, or $0.50 per share, compared to net income of $10.5 million, or $0.11 per share, for fiscal 2004. Net cash provided by operating activities was $47.0 million for the fourth quarter of fiscal 2005, compared to $53.9 million for the same period last year. Net cash provided by operating activities was $206.1 million for fiscal 2005, compared to $171.1 million for fiscal 2004. Underlying Results: Underlying net income for the fourth quarter was $36.5 million, compared to $27.3 million for the same quarter of last year. Underlying earnings per share were $0.39 for the fourth quarter of fiscal 2005, compared to $0.30 for the fourth quarter of last year. For fiscal 2005, underlying net income was $133.0 million, or $1.43 per share, compared to underlying net income of $96.5 million, or $1.05 per share, for fiscal 2004. Underlying net income and earnings per share for the fourth quarter of fiscal 2005 exclude the amortization of acquisition-related intangible assets, a reorganization charge, an intangible asset impairment charge, and related tax benefits. Underlying net income and earnings per share for the fourth quarter of fiscal 2004 exclude the amortization of acquisition-related intangible assets and related tax benefits. A reconciliation of CheckFree's quarterly and annual underlying results to its GAAP results is included on pages 2 and 3 of Attachment A. "CheckFree's businesses delivered solid results for the quarter. Electronic billing and payment transactions showed steady growth, portfolios under management continued to increase and the Software division performed well in an expanding global market," said Pete Kight, Chairman and Chief Executive Officer of CheckFree Corporation. "As a result, CheckFree enters the next fiscal year from a position of strength in our core businesses." Fourth Quarter and Fiscal Year 2005 Highlights For the fourth quarter of fiscal 2005, the Company reported that its Electronic Commerce division processed 244.9 million transactions for the quarter, a 4 percent sequential increase over the third quarter of fiscal 2005, and delivered 41.0 million electronic bills, a sequential increase of 11 percent over the previous quarter. For fiscal 2005, CheckFree processed 905 million transactions compared to 583 million transactions in the previous fiscal year, representing 55 percent annual growth, which includes a full year of walk-in-payment transactions. CheckFree Investment Services now has 1.9 million portfolios under management compared to about 1.6 million portfolios under management at the end of fiscal 2004, representing 20 percent annual growth, and the Software business delivered another solid year of performance, with revenue growth of 20 percent over fiscal 2004. Refer to Attachment B for details on the financial performance of CheckFree's divisions in the fourth quarter of fiscal 2005, and Attachment C for electronic billing and payment metrics. Financial Outlook for Fiscal 2006 and the First Quarter of Fiscal 2006 "For fiscal 2006, we expect earnings per share of $1.11 to $1.16 on a GAAP basis and $1.50 to $1.54 on an underlying basis," said CheckFree Chief Financial Officer, David Mangum. "These expectations take into account the expiration of TransPoint guaranteed revenue minimums during the year." "We expect free cash flow of about $170 million for fiscal 2006, essentially flat over fiscal 2005, due to our status as a full-year cash-basis taxpayer without the benefit of the tax credits we utilized in fiscal 2005," he continued. "For the first quarter of the year, we estimate revenue between $204 and $209 million with GAAP earnings per share in the range of $0.19 to $0.22," said Mangum. "This equates to underlying earnings per share in the range of $0.37 to $0.39." "We estimate that sequential transaction growth in the first quarter of 2006 will be in the range of 5 to 8 percent, an increase from our traditional quarterly growth expectations primarily due to the migration of former FleetBank Financial electronic billing and payment subscribers to our platform," he continued. "We expect performance to remain steady in the Investment Services business, while our Software division is expected to experience a normal, seasonally light first quarter for license sales," Mangum concluded. The difference between GAAP and underlying earnings expectations for fiscal 2006 and the first quarter of fiscal 2006 is due to expected acquisition-related intangible amortization expense, expenses related to stock options issued prior to July 1, 2004, and related tax benefits. The Company also announced that in the fourth quarter it repurchased $33.5 million of its common stock under a $40 million stock repurchase program previously authorized by its Board of Directors, which expires August 31, 2005. The Company's Board of Directors recently approved a new, separate stock repurchase program under which CheckFree may repurchase up to $60 million of its common stock through July 31, 2006. Conference Call on the Internet CheckFree will broadcast its fourth quarter conference call at 5:00 p.m. (ET) today to review its financial results for the fourth quarter and fiscal year ended June 30, 2005 and its expectations for the first quarter of fiscal 2006 and for fiscal 2006. 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 website at http://www.checkfreecorp.com/. A digital replay of the call will be available on the same website 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 for the first quarter of fiscal 2006, earnings per share for the first quarter of fiscal 2006 and fiscal 2006 as a whole, free cash flow for fiscal 2006, and sequential transaction growth and general performance of the Company's divisions in the first quarter of fiscal 2006 (paragraphs 4, 7, 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), Form 10-Q for the quarter ended September 30, 2004 (filed November 9, 2004), Form 10-Q for the quarter ended December 31, 2004 (filed February 8, 2005), and Form 10-Q for the quarter ended March 31, 2005 (filed May 9, 2005). 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 Year Ended June 30, June 30, 2005 2004 2005 2004 Revenues: Processing and servicing $175,722 $139,487 $668,353 $530,205 License fees 9,471 6,625 28,458 23,931 Maintenance fees 8,487 7,114 31,265 28,271 Other 9,343 6,800 29,756 24,057 Total revenues 203,023 160,026 757,832 606,464 Expenses: Cost of processing, servicing and support 76,461 63,993 297,256 244,811 Research and development 22,229 18,084 82,550 66,288 Sales and marketing 22,708 13,253 70,054 51,910 General and administrative 15,338 10,151 59,272 45,759 Depreciation and amortization 45,345 42,204 176,598 177,582 Reorganization charge 5,585 - 5,585 - In-process research and development - - - 324 Total expenses 187,666 147,685 691,315 586,674 Income from operations 15,357 12,341 66,517 19,790 Equity in net loss of joint venture (814) (593) (2,984) (593) Interest, net 2,387 1,023 7,716 (7,467) Gain on investments - - 592 - Income before income taxes 16,930 12,771 71,841 11,730 Income tax expense 4,985 1,367 25,040 1,195 Net income $11,945 $11,404 $46,801 $10,535 Basic income per share: Net income $0.13 $0.13 $0.52 $0.12 Weighted average number of shares 90,962 90,166 90,767 89,870 Diluted income per share: Net income $0.13 $0.12 $0.50 $0.11 Weighted average number of shares 93,054 92,279 92,915 91,864 CHECKFREE CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) (In thousands) June 30, June 30, 2005 2004 Current assets: Cash, cash equivalents and investments $298,077 $208,029 Settlement assets 73,675 82,520 Accounts receivable, net 127,933 111,849 Prepaid expenses and other assets 26,258 14,727 Deferred income taxes 11,100 49,129 Total current assets 537,043 466,254 Property and equipment, net 89,273 91,912 Capitalized software and intangible assets, net 840,732 917,543 Investments 62,996 68,344 Other noncurrent assets 4,600 4,396 Deferred income taxes 29,988 - Investment in joint venture 317 483 Total assets $1,564,949 $1,548,932 Current liabilities: Accounts payable, accrued liabilities and other $84,109 $83,637 Settlement obligations 73,919 82,611 Deferred revenue 40,793 36,193 Total current liabilities 198,821 202,441 Accrued rent and other 4,324 4,313 Deferred income taxes - 17,492 Capital lease and long-term obligations, less current portion 25,389 25,504 Net stockholders' equity 1,336,415 1,299,182 Total liabilities and stockholders' equity $1,564,949 $1,548,932 Attachment A Calculation of Free Cash Flow (Unaudited) (In thousands) Three Months Ended Year Ended June 30, June 30, 2005 2004 2005 2004 Net cash provided by operating activities $46,996 $53,859 $206,095 $171,059 Excluding: Net change in settlement accounts (83) 193 (153) 193 Less: Capital expenditures (9,562) (6,589) (33,893) (23,482) Free cash flow $37,351 $47,463 $172,049 $147,770 Additional Information: Net cash used in investing activities $(23,015) $(107,001) $(215,855) $(103,415) Net cash provided by (used in) financing activities $(33,710) $24,999 $(24,113) $(142,466) 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 Net Income to Underlying Net Income and Earnings Per Share (Unaudited) (In thousands, except per share data) Three Months Ended Year Ended June 30, June 30, 2005 2004 2005 2004 Total revenues - GAAP and underlying $203,023 $160,026 $757,832 $606,464 Net income per GAAP $11,945 $11,404 $46,801 $10,535 Amortization of acquisition- related intangible assets 33,889 31,896 133,446 136,558 Write off of in-process research and development - - - 324 Gain on investments - - (592) - Write off of capitalized software 1,039 - 1,039 - Call premium and write off of unamortized issuance costs for convertible notes - - - 7,219 Reorganization charge 5,585 - 5,585 - Tax benefit of underlying adjustments (15,981) (15,996) (53,275) (58,099) Underlying net income $36,477 $27,304 $133,004 $96,537 GAAP basic weighted average shares outstanding 90,962 90,166 90,767 89,870 GAAP impact of dilutive options and warrants 2,092 2,113 2,148 1,994 GAAP diluted weighted average shares outstanding 93,054 92,279 92,915 91,864 Underlying basic weighted average shares outstanding 90,962 90,166 90,767 89,870 Underlying impact of dilutive options and warrants 2,092 2,113 2,148 1,994 Underlying diluted weighted average shares outstanding 93,054 92,279 92,915 91,864 GAAP basic earnings per share $0.13 $0.13 $0.52 $0.12 GAAP diluted earnings per share $0.13 $0.12 $0.50 $0.11 Underlying basic earnings per share $0.40 $0.30 $1.47 $1.07 Underlying diluted earnings per share $0.39 $0.30 $1.43 $1.05 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, the Company uses underlying revenue and underlying income (loss) from operations as factors in determining short-term 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 Year Ended June 30, June 30, 2005 2004 2005 2004 Revenues: Processing and servicing $175,722 $139,487 $668,353 $530,205 License fees 9,471 6,625 28,458 23,931 Maintenance fees 8,487 7,114 31,265 28,271 Other 9,343 6,800 29,756 24,057 Total revenues 203,023 160,026 757,832 606,464 Expenses: Cost of processing, servicing and support 76,461 63,993 297,256 244,811 Research and development 22,229 18,084 82,550 66,288 Sales and marketing 22,708 13,253 70,054 51,910 General and administrative 15,338 10,151 59,272 45,759 Depreciation and amortization 10,417 10,308 42,113 41,024 Total expenses 147,153 115,789 551,245 449,792 Income from operations 55,870 44,237 206,587 156,672 Equity in net loss of joint venture (814) (593) (2,984) (593) Interest, net 2,387 1,023 7,716 (248) Income before income taxes 57,443 44,667 211,319 155,831 Income tax expense 20,966 17,363 78,315 59,294 Net income $36,477 $27,304 $133,004 $96,537 Basic income per share: Net income $0.40 $0.30 $1.47 $1.07 Weighted average number of shares 90,962 90,166 90,767 89,870 Diluted income per share: Net income $0.39 $0.30 $1.43 $1.05 Weighted average number of shares 93,054 92,279 92,915 91,864 Attachment B Reconciliation of GAAP Results to Underlying Results by Segment (Unaudited) (In thousands) Three Months Ended Year Ended June 30, June 30, 2005 2004 2005 2004 Electronic Commerce: Total revenues - GAAP and underlying $152,800 $118,508 $580,696 $452,732 Operating income - GAAP $20,230 $10,718 $74,413 $23,025 Amortization of acquisition- related intangible assets 32,494 31,122 130,175 132,699 Reorganization charge 3,208 - 3,208 - Underlying operating income $55,932 $41,840 $207,796 $155,724 Investment Services: Total revenues - GAAP and underlying $25,206 $22,966 $96,064 $86,270 Operating income - GAAP $5,153 $5,749 $17,721 $19,092 Amortization of acquisition- related intangible assets 151 151 604 819 Reorganization charge 313 - 313 - Underlying operating income $5,617 $5,900 $18,638 $19,911 Software: Total revenues - GAAP and underlying $25,017 $18,552 $81,072 $67,462 Operating income - GAAP $220 $3,323 $12,166 $10,929 Amortization of acquisition- related intangible assets 1,244 623 2,667 3,040 Reorganization charge 1,876 - 1,876 - Write off of capitalized software 1,039 - 1,039 - Write off of in-process research and development - - - 324 Underlying operating income $4,379 $3,946 $17,748 $14,293 Corporate: Operating loss - GAAP $(10,246) $(7,449) $(37,783) $(33,256) Reorganization charge 188 - 188 - Underlying operating loss $(10,058) $(7,449) $(37,595) $(33,256) Attachment C Electronic Billing and Payment Metrics (In millions, except revenue/transaction and percentages) Quarter Ended 6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004 Transactions Full Service Revenue $110.1 $106.4 $102.4 $99.1 $96.2 Active Subscribers(1) 7.8 7.4 6.9 6.4 5.9 Transactions 161.9 153.6 142.9 133.5 123.9 Revenue/Transaction $0.68 $0.69 $0.72 $0.74 $0.78 Payment Services(2) Revenue $33.8 $32.4 $31.3 $30.5 $14.0 Transactions 83.0 80.8 76.5 72.3 41.3 Revenue/Transaction $0.41 $0.40 $0.41 $0.42 $0.34 Total 244.9 234.4 219.4 205.8 165.2 Sequential Quarterly Growth 4 % 7 % 7 % 25 % 8 % Other Revenue(3) $8.9 $8.8 $8.4 $8.6 $8.3 e-Bill Delivery Electronic bills distributed 41.0 36.8 32.8 29.6 25.9 Quarterly sequential growth 11 % 12 % 11 % 14 % 15 % Electronic Rate Electronic payment rate 84 % 83 % 83 % 83 % 79 % (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/

Copyright