CKFR Checkfree Corp (MM)

CheckFree Announces Fiscal 2004 Third Quarter Results ATLANTA, April 20 /PRNewswire-FirstCall/ -- CheckFree Corporation today announced third quarter revenue of $155.2 million, representing 10 percent growth over the same period last year. The Company's GAAP (Generally Accepted Accounting Principles) net income was $7.7 million or $0.08 per share, and underlying net income was $26.5 million, or $0.29 per share. Free cash flow was $41.0 million for the quarter as outlined in Attachment A. GAAP Results: Net income for the third quarter was $7.7 million, compared to a net loss of $7.8 million for the same quarter last year. Earnings per share were $0.08 for the third quarter of fiscal 2004, compared to a loss per share of $0.09 for the third quarter of last year. GAAP net cash provided by operating activities was $48.8 million for the third quarter of fiscal 2004, compared to $44.8 million for the same period last year. Underlying Results: Underlying net income for the third quarter was $26.5 million, compared to $20.5 million for the same quarter of last year. Underlying earnings per share were $0.29 for the third quarter of fiscal 2004, compared to $0.23 for the third quarter of last year. Underlying net income and earnings per share exclude the amortization of acquisition-related intangible assets, a loss on investments, and related income tax benefits. A reconciliation of CheckFree's underlying results to its GAAP results is included in Attachment A. "The Company's results this quarter and throughout the year reflect focused execution on our core competencies of electronic billing and payment, investment services, and transaction management software. Our performance in these markets has enabled us to strengthen our leadership role in all three areas. As we finish out the year, CheckFree will continue to leverage and expand on its existing infrastructures, providing high-quality, state-of-the- art products and services for businesses and consumers," said CheckFree Chairman and Chief Executive Officer Pete Kight. Third Quarter Highlights The Company reported that its Electronic Commerce unit processed more than 152.2 million transactions for the quarter, a 9 percent increase over the previous quarter; and delivered 22.5 million electronic bills, an increase of 22 percent over the previous quarter. Refer to Attachment B for details on the financial performance of CheckFree's divisions in the third quarter of fiscal 2004 and Attachment C for core electronic billing and payment metrics. The Company also recently announced a joint venture with BACS Limited, a United Kingdom-based payment network, that will utilize CheckFree i-Series software and the commercial application BACS offers through the UK banking network to develop and promote consolidated bill payment and presentment to the millions of online consumers in the UK. Expectations for Fourth Quarter and Fiscal Year "For the fourth quarter of 2004, we project revenue in the range of $155 to $160 million, and GAAP earnings per share in the range of $0.06 to $0.10," said CheckFree Chief Financial Officer, David Mangum. "This equates to underlying earnings per share in the range of $0.28 to $0.30 for the quarter. We now expect full year earnings per share of $0.05 to $0.09 on a GAAP basis, or $1.04 to $1.06 on an underlying basis, and continue to expect free cash flow for the year to approach 15 percent over the $133.5 million posted last year." "Our expectations for the fourth quarter are based on an outlook for essentially steady performance from Investment Services and Software, and sequential quarterly transaction growth of 8 to 10 percent in Electronic Commerce," he continued. "Our expectations do not include any financial projections for American Payment Systems. We will share further details with the closure of that transaction later in this fiscal year," Mangum concluded. The difference between GAAP and underlying earnings expected in the fourth quarter is due to acquisition-related intangible amortization expense. Use of Non-GAAP Financial Information Management evaluates the Company's operations using measures of underlying income, underlying earnings per share, and free cash flow. These financial measures are not prepared in accordance with GAAP and they exclude or include items that represent either non-cash charges that do not impact the Company's free cash flow or other items that are evaluated separately as they arise. The Company believes these measures are useful to investors because they reflect the performance of the Company's core operations and are consistent with the Company's internal performance measures. Further, the Company considers free cash flow to be a measure of liquidity that provides useful information to management and investors about the amount of cash generated by the Company after the acquisition of property and equipment, which can be used for strategic and other purposes. CheckFree's underlying results and free cash flow should be considered in addition to, and not as a substitute for, our GAAP results. Conference Call on the Internet CheckFree will broadcast its third quarter conference call at 5:00 p.m. (EDT) today to review its financial results for the third quarter ended March 31, 2004, and its expectations for the fourth quarter and fiscal year ending June 30, 2004. To phone into the conference call, dial 1-877-232-1067 anytime after 4:45 p.m. (EDT) 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. (EDT). About CheckFree ( http://www.checkfreecorp.com/ ) CheckFree (NASDAQ:CKFR) is the leading provider of financial electronic commerce services and products. Founded in 1981 and celebrating its 23rd year in e-commerce, CheckFree is comprised of three divisions: Electronic Commerce, Software, and Investment Services. CheckFree launched the first fully integrated electronic billing and payment solution in 1997. In the quarter ended March 31, 2004, more than 13 million consumers initiated online payments through services offered by CheckFree's Electronic Commerce division. Electronic billing and payment is available through more than a thousand financial services organizations, including banks, brokerage firms, Internet portals and personal financial management (PFM) software. At these sites, consumers are able to electronically receive and pay essentially all the bills most common to a U.S. household. CheckFree delivers 22.5 million e-bills each quarter. CheckFree Investment Services provides a broad range of investment management services to thousands of financial institutions nationwide. The division's clients manage nearly 1.5 million portfolios totaling more than $900 billion in assets. CheckFree's Software division provides solutions through three operating units: CheckFree ACH Solutions, CheckFree Financial and Compliance Solutions (CFACS), and CheckFree i-Solutions. CheckFree ACH Solutions provides software and services that are used to process more than two-thirds of the nation's nine billion Automated Clearing House payments, while CFACS provides reconciliation, financial messaging, workflow and compliance software and services to more than 600 organizations in the banking, brokerage, investment management, insurance and credit card industries, among others. CheckFree i-Solutions is the leading provider of e-billing and e-statement software and services for both business-to-consumer and business-to-business applications. 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, earnings and free cash flow for the fourth quarter of fiscal 2004 and fiscal 2004 as a whole, and the performance of each of our divisions and sequential transaction growth in the fourth quarter of fiscal 2004 (paragraphs 4, 7, 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, 2003 (filed September 15, 2003); and Quarterly Reports on Form 10-Q for the quarters ended September 30, 2003 (filed November 13, 2003) and December 31, 2003 (filed February 12, 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 Nine Months Ended March 31, March 31, 2004 2003 2004 2003 Revenue: Processing and servicing $134,826 $121,899 $390,718 $352,398 License fees 7,628 5,703 17,306 16,647 Maintenance fees 7,044 6,563 21,157 19,066 Other 5,740 7,136 17,257 18,930 Total revenue 155,238 141,301 446,438 407,041 Expenses: Cost of processing, servicing and support 60,732 59,103 180,818 177,994 Research and development 17,199 13,595 48,204 39,104 Sales and marketing 13,126 13,631 38,657 40,582 General and administrative 12,413 9,656 35,608 28,657 Depreciation and amortization 42,381 57,011 135,378 170,987 In-process research and development - - 324 - Total expenses 145,851 152,996 438,989 457,324 Income (loss) from operations 9,387 (11,695) 7,449 (50,283) Interest, net 1,098 (1,589) (8,490) (4,055) Loss on investments - (1,297) - (3,228) Income (loss) before income taxes and cumulative effect of accounting change 10,485 (14,581) (1,041) (57,566) Income tax expense (benefit) 2,789 (6,751) (172) (25,247) Income (loss) before cumulative effect of accounting change 7,696 (7,830) (869) (32,319) Cumulative effect of accounting change - - - (2,894) Net income (loss) $7,696 $(7,830) $(869) $(35,213) Basic income (loss) per share: Income (loss) before cumulative effect of accounting change $0.09 $(0.09) $(0.01) $(0.36) Cumulative effect of accounting change - - - (0.03) Net income (loss) $0.09 $(0.09) $(0.01) $(0.40) Weighted average number of shares 89,924 88,949 89,669 88,672 Diluted income (loss) per share: Income (loss) before cumulative effect of accounting change $0.08 $(0.09) $(0.01) $(0.36) Cumulative effect of accounting change - - - (0.03) Net income (loss) $0.08 $(0.09) $(0.01) $(0.40) Weighted average number of shares 92,053 88,949 89,669 88,672 CHECKFREE CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) (In thousands) March 31, June 30, 2004 2003 Current assets: Cash, cash equivalents and investments $240,646 $282,032 Accounts receivable, net 91,564 81,626 Deferred income taxes 63,243 41,202 Other current assets 10,387 12,243 Total current assets 405,840 417,103 Property and equipment, net 86,223 94,853 Capitalized software and intangible assets, net 857,043 946,976 Investments 77,305 121,615 Other 5,159 6,723 Total assets $1,431,570 $1,587,270 Current liabilities: Accounts payable, accrued liabilities and other $70,142 $73,739 Deferred revenues 36,636 36,543 Total current liabilities 106,778 110,282 Accrued rent and other 3,733 3,419 Long-term obligations, less current portion 2,291 4,192 Deferred income taxes 35,936 28,728 Convertible subordinated notes - 172,500 Net stockholders' equity 1,282,832 1,268,149 Total liabilities and stockholders' equity $1,431,570 $1,587,270 Attachment A Calculation of Free Cash Flow (Unaudited) (In millions) Three Months Nine Months Ended Ended March 31, March 31, 2004 2003 2004 2003 Cash provided by operating activities $48.8 $44.8 $117.2 $115.9 Less: capital expenditures 7.8 4.4 16.9 20.8 Free cash flow $41.0 $40.4 $100.3 $95.1 The Company defines free cash flow as GAAP net cash from operating activities less capital expenditures. Cash provided by (used in) investing activities $4.0 $(17.4) $3.6 $(51.4) Cash provided by (used in) financing activities $3.2 $1.8 $(167.5) $(1.5) Reconciliation of GAAP Net Income (Loss) to Underlying Net Income and Earnings (Loss) Per Share (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, 2004 2003 2004 2003 Total revenue per GAAP $155,238 $141,301 $446,438 $407,041 Warrants issued to third party - - - (644) Total underlying revenue $155,238 $141,301 $446,438 $406,397 Net income (loss) per GAAP $7,696 $(7,830) $(869) $(35,213) Warrants issued to third party - - - (644) Amortization of acquisition- related intangible assets 32,069 45,990 104,662 138,304 Write off in-process research and development - - 324 - Call premium and write off of unamortized issuance costs for convertible notes - - 7,219 - Loss on investments - 1,297 - 3,228 Tax benefit of underlying adjustments (13,248) (18,961) (42,103) (56,301) Cumulative effect of accounting change (1) - - - 2,894 Underlying net income $26,517 $20,496 $69,233 $52,268 GAAP basic weighted average shares outstanding 89,924 88,949 89,669 88,672 GAAP impact of dilutive options and warrants 2,129 - - - GAAP diluted weighted average shares outstanding 92,053 88,949 89,669 88,672 Underlying basic weighted average shares outstanding 89,924 88,949 89,669 88,672 Underlying impact of dilutive options and warrants 2,129 1,082 1,933 341 Underlying diluted weighted average shares outstanding 92,053 90,031 91,602 89,013 GAAP basic income (loss) per share $0.09 $(0.09) $(0.01) $(0.40) GAAP diluted income (loss) per share $0.08 $(0.09) $(0.01) $(0.40) Underlying basic income per share $0.29 $0.23 $0.77 $0.59 Underlying diluted income per share $0.29 $0.23 $0.76 $0.59 (1) Effective July 1, 2002, the Company adopted SFAS No. 142 - Accounting for Goodwill and Other Intangible Assets. Upon adoption of SFAS No. 142, the Company no longer amortizes goodwill. CHECKFREE CORPORATION AND SUBSIDIARIES Supplemental Underlying Consolidated Condensed Statements of Operations (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, 2004 2003 2004 2003 Revenue: Processing and servicing $134,826 $121,899 $390,718 $351,754 License fees 7,628 5,703 17,306 16,647 Maintenance fees 7,044 6,563 21,157 19,066 Other 5,740 7,136 17,257 18,930 Total revenue 155,238 141,301 446,438 406,397 Expenses: Cost of processing, servicing and support 60,732 59,103 180,818 177,994 Research and development 17,199 13,595 48,204 39,104 Sales and marketing 13,126 13,631 38,657 40,582 General and administrative 12,413 9,656 35,608 28,657 Depreciation and amortization 10,312 11,021 30,716 32,683 Total expenses 113,782 107,006 334,003 319,020 Income from operations 41,456 34,295 112,435 87,377 Interest, net 1,098 (1,589) (1,271) (4,055) Income before income taxes 42,554 32,706 111,164 83,322 Income tax expense 16,037 12,210 41,931 31,054 Net income $26,517 $20,496 $69,233 $52,268 Basic income per share: Net income $0.29 $0.23 $0.77 $0.59 Weighted average number of shares 89,924 88,949 89,669 88,672 Diluted income per share: Net income $0.29 $0.23 $0.76 $0.59 Weighted average number of shares 92,053 90,031 91,602 89,013 Attachment B Reconciliation of GAAP Results to Underlying Results by Segment (Unaudited) (In thousands) Three Months Ended Nine Months Ended March 31, March 31, 2004 2003 2004 2003 Electronic Commerce: Total revenue per GAAP $115,181 $104,521 $334,224 $299,337 Warrants issued to third party - - - (644) Total underlying revenue $115,181 $104,521 $334,224 $298,693 Operating income (loss) per GAAP $9,994 $(11,876) $12,307 $(47,208) Warrants issued to third party - - - (644) Amortization of acquisition- related intangible assets 31,007 43,757 101,577 131,271 Underlying operating income $41,001 $31,881 $113,884 $83,419 Investment Services: Total revenue - GAAP and underlying $21,546 $20,439 $63,304 $60,907 Operating income per GAAP $4,280 $5,064 $13,343 $14,201 Amortization of acquisition- related intangible assets 205 578 668 2,068 Underlying operating income $4,485 $5,642 $14,011 $16,269 Software: Total revenue - GAAP and underlying $18,511 $16,341 $48,910 $46,797 Operating income per GAAP $3,697 $3,461 $7,606 $7,174 Amortization of acquisition- related intangible assets 857 1,655 2,417 4,965 Write off in-process research and development - - 324 - Underlying operating income $4,554 $5,116 $10,347 $12,139 Corporate: Operating loss - GAAP and underlying $(8,584) $(8,344) $(25,807) $(24,450) Attachment C Core Electronic Billing and Payment Metrics (in millions, except revenue/transaction, percentages and distribution points) Quarter Ended 3/31/04 12/31/03 9/30/03 6/30/03 3/31/03 Transactions Full Service Transactions Revenue $94.0 $91.8 $85.5 $82.6 $81.5 Active Subscribers(1) 5.5 5.0 4.6 4.2 3.9 Transactions 115.5 106.1 94.3 87.5 80.3 Revenue/Transaction(2) $0.81 $0.87 $0.91 $0.94 $1.01 Payment Services Transactions Revenue $12.8 $12.0 $11.9 $12.3 $12.8 Transactions 36.7 33.1 32.4 32.7 31.6 Revenue/Transaction(2) $0.35 $0.36 $0.37 $0.37 $0.41 Total Transactions 152.2 139.2 126.7 120.2 111.9 Sequential Quarterly Growth 9% 10% 5% 7% 6% Other Revenue $8.4 $8.7 $9.2 $11.2 $10.3 e-Bill Delivery Electronic bills distributed 22.5 18.5 14.7 11.5 8.8 Quarterly sequential growth 22% 26% 27% 31% 30% Electronic Rate Electronic payment rate 78% 78% 76% 75% 74% Consumer Online Access Distribution points for EBP 1,207 1,120 1,028 949 842 Consumer Reach(3) Consumers initiating payments 13 12 11 10 9 (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) Revenue/Transaction is derived by dividing all services and transaction revenue earned in the category by the number of transactions tracked in the category. (3) Represents the consumers initiating payments through CheckFree-managed services. 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/ Company News On-Call: http://www.prnewswire.com/comp/821650.html

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