ATLANTA, Jan. 24 /PRNewswire-FirstCall/ -- CheckFree Corporation
(NASDAQ:CKFR) today announced second quarter revenue of $215.9
million. The Company's GAAP (Generally Accepted Accounting
Principles) net income for the quarter was $33.8 million, or $0.36
per share, and underlying net income was $41.0 million, or $0.44
per share. Free cash flow was $37.7 million for the quarter, as
outlined in Attachment A. GAAP Results: Net income for the second
quarter was $33.8 million, compared to net income of $13.0 million
for the same quarter last year. Earnings per share were $0.36 for
the second quarter of fiscal 2006, compared to earnings per share
of $0.14 for the second quarter of last year. Net cash provided by
operating activities was $56.8 million for the second quarter of
fiscal 2006, compared to $65.9 million for the same period last
year. Underlying Results: Underlying net income for the second
quarter was $41.0 million, compared to $33.7 million for the same
quarter of last year. Underlying earnings per share were $0.44 for
the second quarter of fiscal 2006, compared to $0.36 for the second
quarter of last year. Underlying net income and earnings per share
for the second quarter exclude the amortization of
acquisition-related intangible assets, the SFAS 123(R) impact of
options issued prior to July 1, 2004 and the related tax benefits
of both. A reconciliation of CheckFree's underlying results to its
GAAP results is included in Attachment A. "CheckFree's divisions
delivered solid results in the second quarter to complete a good
first half of the fiscal year," said Pete Kight, Chairman and Chief
Executive Officer of CheckFree. "Transaction growth in the
Electronic Commerce division was in line with our expectations
while both portfolio growth in Investment Services and license
sales in the Software business were strong." Second Quarter
Highlights For the second quarter, the Company reported that its
Electronic Commerce division processed 270.7 million transactions,
a 2 percent sequential increase over the first quarter of fiscal
2006, and delivered 45.2 million e-Bills, a sequential increase of
6 percent over the first quarter of fiscal 2006. CheckFree
Investment Services reached 2.1 million portfolios under
management, which compares to almost 1.7 million portfolios under
management in the second quarter of fiscal 2005, representing 22
percent annual growth. The Software division delivered solid
performance in the second quarter, with revenue growth of 23
percent over the second quarter of fiscal 2005. Refer to Attachment
B for details on the financial performance of CheckFree's divisions
in the second quarter of fiscal 2006, and Attachment C for
electronic billing and payment metrics. Financial Outlook for the
Third Quarter and the Fiscal Year "Strong financial results through
the mid-point of the fiscal year put the Company on track to exceed
its previously announced fiscal year expectations," said CheckFree
Chief Financial Officer David Mangum. "We now expect full-year
earnings per share in the range of $1.19 to $1.24 on a GAAP basis
and $1.62 to $1.66 on an underlying basis. Free cash flow remains
targeted for about $170 million for fiscal 2006." "For the third
quarter of fiscal 2006, we expect revenue in the range of $217
million to $222 million, and GAAP earnings per share in the range
of $0.27 to $0.30," Mangum continued. "This expectation equates to
underlying earnings per share in the range of $0.36 to $0.38 for
the quarter." The difference between GAAP and underlying earnings
expectations for fiscal 2006 and the third quarter of fiscal 2006
is due to expected acquisition-related intangible amortization
expense, the SFAS 123(R) impact of options issued prior to July 1,
2004 and the related tax benefits of both. Conference Call on the
Internet CheckFree will broadcast a conference call at 5:00 p.m.
(ET) today to review its financial results for the second quarter
ended December 31, 2005, and its expectations for the third 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 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 about $1.3 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 12 billion Automated Clearing House
transactions in the United States. The division also provides
operational risk management, financial messaging, corporate
actions, and regulatory compliance software to more than 1,500
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 regarding
forecasts and expectations of revenue for the third quarter of
fiscal 2006, earnings per share for the third quarter of fiscal
2006 and fiscal 2006 as a whole, free cash flow for fiscal 2006,
and sequential transaction growth and the general performance of
the Company's divisions in the third quarter of fiscal 2006
(paragraphs 7, 8 and 9). 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, 2005 (filed September 2, 2005), and Form 10-Q for
the quarter ended September 30, 2005 (filed November 8, 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 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 Six Months Ended December
31, December 31, 2005 2004 2005 2004 Revenues: Processing and
servicing $187,700 $164,188 $374,324 $323,030 License fees 7,822
7,655 15,380 13,529 Maintenance fees 9,974 7,456 19,644 14,811
Other 10,444 6,457 22,349 12,219 Total revenues 215,940 185,756
431,697 363,589 Expenses: Cost of processing, servicing and support
81,577 72,688 161,834 148,050 Research and development 24,340
19,329 47,954 39,552 Sales and marketing 20,959 16,282 39,564
30,508 General and administrative 16,683 13,430 33,369 28,465
Depreciation and amortization 20,129 43,643 55,809 87,660 Total
expenses 163,688 165,372 338,530 334,235 Income from operations
52,252 20,384 93,167 29,354 Equity in net loss of joint venture
(807) (700) (1,474) (1,347) Interest, net 2,916 1,490 5,372 3,186
Income before income taxes 54,361 21,174 97,065 31,193 Income tax
expense 20,596 8,131 36,943 11,943 Net income $33,765 $13,043
$60,122 $19,250 Basic income per share: Net income $0.37 $0.14
$0.66 $0.21 Weighted average number of shares 90,820 90,545 90,699
90,482 Diluted income per share: Net income $0.36 $0.14 $0.65 $0.21
Weighted average number of shares 93,589 93,019 93,203 92,764
CHECKFREE CORPORATION AND SUBSIDIARIES Consolidated Condensed
Balance Sheets (Unaudited) (In thousands) December 31, June 30,
2005 2005 Current assets: Cash, cash equivalents and investments
$340,507 $298,077 Settlement assets 118,872 73,675 Accounts
receivable, net 144,509 127,933 Prepaid expenses and other assets
36,709 26,258 Deferred income taxes 6,462 10,407 Total current
assets 647,059 536,350 Property and equipment, net 96,407 89,273
Capitalized software and intangible assets, net 839,025 840,732
Investments and restricted cash 69,868 62,996 Other noncurrent
assets 5,309 4,600 Deferred income taxes 43,883 35,648 Investment
in joint venture 1,210 317 Total assets $1,702,761 $1,569,916
Current liabilities: Accounts payable, accrued liabilities and
other $80,879 $84,109 Settlement obligations 116,854 73,919
Deferred revenue 51,588 40,793 Total current liabilities 249,321
198,821 Accrued rent and other 3,542 4,324 Deferred income taxes
2,686 4,967 Capital lease and long-term obligations, less current
portion 25,253 25,389 Total stockholders' equity 1,421,959
1,336,415 Total liabilities and stockholders' equity $1,702,761
$1,569,916 Attachment A Calculation of Free Cash Flow (Unaudited)
(In thousands) Three Months Ended Six Months Ended December 31,
December 31, 2005 2004 2005 2004 Net cash provided by operating
activities $56,787 $65,861 $100,262 $97,535 Excluding: Net change
in settlement accounts (2,646) (63) 2,262 1,428 Less: Capital
expenditures (16,476) (9,238) (23,642) (14,117) Free cash flow
$37,665 $56,560 $78,882 $84,846 Additional Information: Net cash
used in investing activities $(9,307) $(8,743) $(8,065) $(40,020)
Net cash provided by financing activities $8,124 $3,449 $13,314
$4,235 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 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, 2005, which was filed with the Securities and Exchange
Commission on September 2, 2005. 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 Six Months Ended December 31, December 31,
2005 2004 2005 2004 Total revenues - GAAP and underlying $215,940
$185,756 $431,697 $363,589 Net income per GAAP $33,765 $13,043
$60,122 $19,250 Amortization of acquisition-related intangible
assets 9,655 33,211 35,197 66,426 SFAS 123(R) - Stock options
issued before July 1, 2004 1,242 - 2,598 - Tax benefit of
underlying adjustments (3,642) (12,589) (13,751) (25,157)
Underlying net income $41,020 $33,665 $84,166 $60,519 GAAP and
underlying basic weighted average shares outstanding 90,820 90,545
90,699 90,482 GAAP and underlying impact of dilutive options and
warrants 2,769 2,474 2,504 2,282 GAAP and underlying diluted
weighted average shares outstanding 93,589 93,019 93,203 92,764
GAAP basic earnings per share $0.37 $0.14 $0.66 $0.21 GAAP diluted
earnings per share $0.36 $0.14 $0.65 $0.21 Underlying basic
earnings per share $0.45 $0.37 $0.93 $0.67 Underlying diluted
earnings per share $0.44 $0.36 $0.90 $0.65 Use of Non-GAAP
Financial Information CheckFree supplements its 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 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 revenues
and decrease controllable costs, the Company uses underlying
revenues and underlying income (loss) from operations as factors in
determining short-term incentive compensation for management, and
uses underlying revenues, 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 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. CheckFree's 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 Six Months Ended December 31,
December 31, 2005 2004 2005 2004 Revenues: Processing and servicing
$187,700 $164,188 $374,324 $323,030 License fees 7,822 7,655 15,380
13,529 Maintenance fees 9,974 7,456 19,644 14,811 Other 10,444
6,457 22,349 12,219 Total revenues 215,940 185,756 431,697 363,589
Expenses: Cost of processing, servicing and support 81,275 72,688
161,202 148,050 Research and development 23,975 19,329 47,190
39,552 Sales and marketing 20,745 16,282 39,117 30,508 General and
administrative 16,322 13,430 32,614 28,465 Depreciation and
amortization 10,474 10,432 20,612 21,234 Total expenses 152,791
132,161 300,735 267,809 Income from operations 63,149 53,595
130,962 95,780 Equity in net loss of joint venture (807) (700)
(1,474) (1,347) Interest, net 2,916 1,490 5,372 3,186 Income before
income taxes 65,258 54,385 134,860 97,619 Income tax expense 24,238
20,720 50,694 37,100 Net income $41,020 $33,665 $84,166 $60,519
Basic income per share: Net income $0.45 $0.37 $0.93 $0.67 Weighted
average number of shares 90,820 90,545 90,699 90,482 Diluted income
per share: Net income $0.44 $0.36 $0.90 $0.65 Weighted average
number of shares 93,589 93,019 93,203 92,764 Attachment B
Reconciliation of GAAP Results to Underlying Results by Segment
(Unaudited) (In thousands) Three Months Ended Six Months Ended
December 31, December 31, 2005 2004 2005 2004 Electronic Commerce:
Total revenues - GAAP and underlying $163,298 $142,108 $326,749
$280,315 Operating income - GAAP $55,817 $18,320 $99,730 $32,708
Amortization of acquisition-related intangible assets 7,352 32,559
30,927 65,122 SFAS 123(R) - Stock options issued before July 1,
2004(1) 901 - 1,886 - Underlying operating income $64,070 $50,879
$132,543 $97,830 Investment Services: Total revenues - GAAP and
underlying $28,448 $23,972 $54,869 $46,815 Operating income - GAAP
$4,276 $5,473 $8,222 $7,882 Amortization of acquisition-related
intangible assets 648 151 961 302 SFAS 123(R) - Stock options
issued before July 1, 2004(1) 128 - 267 - Underlying operating
income $5,052 $5,624 $9,450 $8,184 Software: Total revenues - GAAP
and underlying $24,194 $19,676 $50,079 $36,459 Operating income -
GAAP $1,598 $6,168 $5,049 $6,300 Amortization of
acquisition-related intangible assets 1,655 501 3,309 1,002 SFAS
123(R) - Stock options issued before July 1, 2004(1) 55 - 115 -
Underlying operating income $3,308 $6,669 $8,473 $7,302 Corporate:
Operating loss - GAAP $(9,439) $(9,577) $(19,834) $(17,536) SFAS
123(R) - Stock options issued before July 1, 2004(1) 158 - 330 -
Underlying operating loss $(9,281) $(9,577) $(19,504) $(17,536) (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.
Attachment C Electronic Billing and Payment Metrics (in millions,
except revenue/transaction and percentages) Quarter Ended
12/31/2005 9/30/2005 3/31/2005 12/31/2004 9/30/2004 Transactions
Full Service Revenue $116.0 $118.5 $106.4 $102.4 $99.1 Active
Subscribers(1) 9.0 8.8 7.4 6.9 6.4 Transactions 189.7 180.1 153.6
142.9 133.5 Revenue/Transaction $0.61 $0.66 $0.69 $0.72 $0.74
Payment Services Revenue $36.1 $35.4 $32.4 $31.3 $30.5 Transactions
81.0 85.9 80.8 76.5 72.3 Revenue/Transaction $0.45 $0.41 $0.40
$0.41 $0.42 Total 270.7 266.0 234.4 219.4 205.8 Sequential
Quarterly Growth 2% 9% 7% 7% 25% Other Revenue(2) $11.2 $9.6 $8.8
$8.4 $8.6 e-Bill Delivery Electronic bills distributed 45.2 42.7
36.8 32.8 29.6 Quarterly sequential growth 6% 4% 12% 11% 14%
Electronic Rate Electronic payment rate 83% 83% 83% 83% 83% (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) Other revenue includes Health and
Fitness, Professional Services and Stored Value Products. First
Call Analyst: FCMN Contact: dfontaine@checkfree.com DATASOURCE:
CheckFree Corporation CONTACT: Media relations, Judy DeRango Wicks,
+1-678-375-1595, or , or Investor relations, Tina Moore,
+1-678-375-1278, or , both of CheckFree Corporation Web site:
http://www.checkfreecorp.com/
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