CKFR Checkfree Corp (MM)

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. 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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