ATLANTA, April 25 /PRNewswire-FirstCall/ -- CheckFree Corporation
(NASDAQ:CKFR) today announced third quarter GAAP (Generally
Accepted Accounting Principles) revenue of $226.9 million, and
underlying revenue of $227.7 million. The Company's GAAP net income
for the quarter was $37.7 million, or $0.40 per share, and
underlying net income was $40.1 million, or $0.43 per share. Free
cash flow was $62.3 million for the quarter, as outlined in
Attachment A. GAAP Results: Net income for the third quarter was
$37.7 million, compared to net income of $15.6 million for the same
quarter last year. Earnings per share were $0.40 for the third
quarter of fiscal 2006, compared to earnings per share of $0.17 for
the third quarter of last year. Net cash provided by operating
activities was $72.5 million for the third quarter of fiscal 2006,
compared to $61.6 million for the same period last year. Underlying
Results: Underlying net income for the third quarter was $40.1
million, compared to $36.0 million for the same quarter of last
year. Underlying earnings per share were $0.43 for the third
quarter of fiscal 2006, compared to $0.39 for the third quarter of
last year. Underlying net income and earnings per share for the
third quarter exclude the amortization of acquisition-related
intangible assets; the SFAS 123(R) impact of options issued prior
to July 1, 2004; the historical effect of discontinued operations
on revenue and net income on all periods reported, resulting from a
divestiture in the March 2006 quarter; and their related combined
tax benefits. A reconciliation of CheckFree's underlying results to
its GAAP results is included in Attachments A and B. "CheckFree
executed well in each of our operating units during the third
quarter," said Pete Kight, Chairman and Chief Executive Officer of
CheckFree. "Our Software unit completed one of its strongest
contract sales quarters ever; in Electronic Commerce, transactions
processed saw consistent growth month-over-month; and in CheckFree
Investment Services, we had another solid quarter." Third Quarter
Highlights For the third quarter, the Company reported that its
Software division delivered strong performance. It also reported
that its Electronic Commerce division processed 293.3 million
transactions, an 8 percent sequential increase over the second
quarter of fiscal 2006, and delivered 46.7 million e-Bills, a
sequential increase of 3 percent over the second quarter of fiscal
2006. CheckFree Investment Services reported almost 2.2 million
portfolios under management, which compares to almost 1.8 million
portfolios under management reported in the third quarter of fiscal
2005. The Electronic Commerce division acquired PhoneCharge, Inc.,
for $99.8 million and the Investment Services division divested its
M-Solutions business for $18.6 million, resulting in a gain on the
sale of $12.8 million. The Company also repurchased over 150,000
shares of common stock for approximately $7.0 million. Refer to
Attachment B for details on the financial performance of
CheckFree's divisions in the third quarter of fiscal 2006, and
Attachment C for electronic billing and payment metrics. Financial
Outlook for the Fourth Quarter and the Fiscal Year "Based on strong
year-to-date results, we have raised our expectations for the
Company's consolidated performance," said CheckFree Chief Financial
Officer David Mangum. "For the fourth quarter of fiscal 2006, we
expect revenue in the range of $226 million to $231 million, GAAP
earnings per share in the range of $0.30 to $0.33, and underlying
earnings per share in the range of $0.39 to $0.41. For the full
year, we now expect GAAP earnings per share in the range of $1.34
to $1.37, underlying earnings per share in the range of $1.72 to
$1.74, and free cash flow to be about $175 million." The difference
between GAAP and underlying earnings expectations for fiscal 2006
and the fourth 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; the
historical effect of discontinued operations on revenue and net
income through February 2006, resulting from a divestiture in the
March 2006 quarter; and their related combined tax benefits.
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 third quarter ended March 31, 2006, and its
expectations for the fourth 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 fourth quarter of
fiscal 2006, earnings per share for the fourth 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 fourth quarter of fiscal 2006
(paragraphs 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), Form 10-Q for the
quarter ended September 30, 2005 (filed November 8, 2005), and Form
10-Q for the quarter ended December 31, 2005 (filed February 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 Nine Months Ended March
31, March 31, 2006 2005 2006 2005 Revenues: Processing and
servicing $192,786 $167,645 $563,143 $486,787 License fees 9,479
5,458 24,859 18,987 Maintenance fees 11,078 7,959 30,707 22,751
Professional fees 13,584 8,138 35,755 20,303 Total revenues 226,927
189,200 654,464 548,828 Expenses: Cost of processing, servicing and
support 91,351 72,660 253,026 220,539 Research and development
26,038 20,139 72,865 58,448 Sales and marketing 22,107 16,590
61,272 46,615 General and administrative 16,219 15,016 48,777
42,573 Depreciation and amortization 22,349 43,377 77,749 130,589
Total expenses 178,064 167,782 513,689 498,764 Income from
continuing operations before other income and expenses 48,863
21,418 140,775 50,064 Equity in net loss of joint venture (973)
(823) (2,447) (2,170) Interest, net 3,011 2,143 8,383 5,328 Gain on
investments - 592 - 592 Income from continuing operations before
income taxes 50,901 23,330 146,711 53,814 Income tax expense 18,720
7,976 55,180 19,660 Income from continuing operations 32,181 15,354
91,531 34,154 Earnings from discontinued operations before income
taxes (including gain on disposal of $12,821 in FY'2006) 13,056 388
14,311 1,097 Income tax expense on discontinued operations 7,581
136 8,064 395 Income from discontinued operations 5,475 252 6,247
702 Net income $37,656 $15,606 $ 97,778 $34,856 Basic income per
share: Continuing operations $0.35 $0.17 $1.01 $0.37 Discontinued
operations 0.06 0.00 0.07 0.01 Total basic income per share $0.41
$0.17 $1.08 $0.38 Weighted average number of shares 91,257 90,864
90,883 90,614 Diluted income per share: Continuing operations $0.34
$0.17 $0.98 $0.37 Discontinued operations 0.06 0.00 0.07 0.01 Total
diluted income per share $0.40 $0.17 $1.05 $0.38 Weighted average
number of shares 94,199 93,052 93,533 92,374 CHECKFREE CORPORATION
AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited)
(In thousands) March 31, June 30, 2006 2005 Current assets: Cash,
cash equivalents and investments $313,804 $298,077 Settlement
assets 107,881 73,675 Accounts receivable, net 131,675 127,933
Prepaid expenses and other assets 29,095 26,258 Deferred income
taxes 11,599 10,407 Total current assets 594,054 536,350 Property
and equipment, net 96,904 89,273 Capitalized software and
intangible assets, net 917,490 840,732 Investments and restricted
cash 78,032 62,996 Other noncurrent assets 5,627 4,600 Deferred
income taxes 45,153 35,648 Investment in joint venture 1,003 317
Total assets $1,738,263 $1,569,916 Current liabilities: Accounts
payable, accrued liabilities and other $84,334 $84,109 Settlement
obligations 105,721 73,919 Deferred revenue 43,075 40,793 Total
current liabilities 233,130 198,821 Accrued rent and other 3,631
4,324 Deferred income taxes 2,909 4,967 Capital lease and long-term
obligations, less current portion 25,376 25,389 Total stockholders'
equity 1,473,217 1,336,415 Total liabilities and stockholders'
equity $1,738,263 $1,569,916 Attachment A Calculation of Free Cash
Flow (Unaudited) (In thousands) Three Months Ended Nine Months
Ended March 31, March 31, 2006 2005 2006 2005 Net cash provided by
operating activities $72,539 $61,564 $172,801 $159,099 Excluding:
Net change in settlement accounts (68) (1,498) 2,194 (70) Less:
Capital expenditures (10,175) (10,214) (33,817) (24,331) Free cash
flow $62,296 $49,852 $141,178 $134,698 Additional Information: Net
cash used in investing activities $(79,422) $(152,820) $(87,487)
$(192,840) Net cash provided by financing activities $4,277 $5,362
$17,591 $9,597 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 Nine Months Ended March 31, March 31, 2006
2005 2006 2005 Total revenues per GAAP $226,927 $189,200 $654,464
$548,828 Impact of discontinued operations 797 2,020 4,957 5,981
Underlying total revenues $227,724 $191,220 $659,421 $554,809 Net
income per GAAP $37,656 $ 15,606 $ 97,778 $ 34,856 Gain from
discontinued operations, net of taxes (5,376) - (5,597) -
Amortization of acquisition-related intangible assets 11,254 33,131
46,451 99,557 SFAS 123(R) - Stock options issued before July 1,
2004 777 - 3,375 - Gain on investments - (592) - (592) Tax benefit
of underlying adjustments (excluding discontinued operations)
(4,175) (12,137) (17,705) (37,294) Underlying net income $40,136 $
36,008 $124,302 $ 96,527 GAAP and underlying basic weighted average
shares outstanding 91,257 90,864 90,883 90,614 GAAP and underlying
impact of dilutive options and warrants 2,942 2,188 2,650 1,760
GAAP and underlying diluted weighted average shares outstanding
94,199 93,052 93,533 92,374 GAAP total basic earnings per share
$0.41 $0.17 $1.08 $0.38 GAAP total diluted earnings per share $0.40
$0.17 $1.05 $0.38 Underlying total basic earnings per share $0.44
$0.40 $1.37 $1.07 Underlying total diluted earnings per share $0.43
$0.39 $1.33 $1.04 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 Nine Months Ended March 31, March
31, 2006 2005 2006 2005 Revenues: Processing and servicing $193,539
$169,601 $567,863 $492,631 License fees 9,479 5,458 24,859 18,987
Maintenance fees 11,089 7,967 30,733 22,778 Professional fees
13,617 8,194 35,966 20,413 Total revenues 227,724 191,220 659,421
554,809 Expenses: Cost of processing, servicing and support 91,186
72,745 252,388 220,795 Research and development 26,046 20,769
73,236 60,321 Sales and marketing 22,044 16,838 61,161 47,346
General and administrative 16,144 15,469 48,758 43,934 Depreciation
and amortization 11,175 10,462 31,787 31,696 Total expenses 166,595
136,283 467,330 404,092 Income from operations 61,129 54,937
192,091 150,717 Equity in net loss of joint venture (973) (823)
(2,447) (2,170) Interest, net 3,011 2,143 8,383 5,329 Income before
income taxes 63,167 56,257 198,027 153,876 Income tax expense
23,031 20,249 73,725 57,349 Net income $40,136 $36,008 $124,302
$96,527 Basic income per share: Net income $0.44 $0.40 $1.37 $1.07
Weighted average number of shares 91,257 90,864 90,883 90,614
Diluted income per share: Net income $0.43 $0.39 $1.33 $1.04
Weighted average number of shares 94,199 93,052 93,533 92,374
Attachment B Reconciliation of GAAP Results to Underlying Results
by Segment (Unaudited) (In thousands) Three Months Ended Nine
Months Ended March 31, March 31, 2006 2005 2006 2005 Electronic
Commerce: Total revenues - GAAP and underlying $169,438 $147,581
$496,187 $427,896 Income from continuing operations - GAAP $50,066
$21,475 $149,796 $54,183 Amortization of acquisition-related
intangible assets 9,110 32,559 40,037 97,681 SFAS 123(R) - Stock
options issued before July 1, 2004(1) 563 - 2,449 - Underlying
income from continuing operations $59,739 $54,034 $192,282 $151,864
Investment Services: Total revenues - GAAP $27,833 $22,023 $78,542
$64,877 Impact of discontinued operations(2) 797 2,020 4,957 5,981
Total revenues - Underlying $28,630 $24,043 $83,499 $70,858 Income
from continuing operations - GAAP $3,323 $4,298 $10,290 $11,472
Amortization of acquisition-related intangible assets 547 151 1,508
453 Impact of discontinued operations(2) 235 388 1,490 1,096 SFAS
123(R) - Stock options issued before July 1, 2004(1) 80 - 347 -
Underlying income from continuing operations $4,185 $4,837 $13,635
$13,021 Software: Total revenues - GAAP and underlying $29,656
$19,596 $79,735 $56,055 Income from continuing operations - GAAP
$5,864 $5,646 $10,913 $11,946 Amortization of acquisition-related
intangible assets 1,597 421 4,906 1,423 SFAS 123(R) - Stock options
issued before July 1, 2004(1) 35 - 150 - Underlying income from
continuing operations $7,496 $6,067 $15,969 $13,369 Corporate: Loss
from continuing operations - GAAP $(10,390) $(10,001) $(30,224)
$(27,537) SFAS 123(R) - Stock options issued before July 1, 2004(1)
99 - 429 - Underlying loss from continuing operations $(10,291)
$(10,001) $(29,795) $(27,537) (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 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. For underlying
purposes, in contrast, we have excluded the gain on disposition in
the current periods and we are including the results of M-Solutions
in our underlying results for the time period that we owned the
business during the current quarter and for all of the prior
periods presented. Attachment C Electronic Billing and Payment
Metrics (in millions, except revenue/transaction and percentages)
Quarter Ended 3/31/ 12/31/ 9/30/ 3/31/ 12/31/ 9/30/ 2006 2005 2005
2005 2004 2004 Transactions Full Service Revenue $109.4 $116.0
$118.5 $106.4 $102.4 $99.1 Active Subscribers(1) 9.7 9.0 8.8 7.4
6.9 6.4 Transactions 206.7 189.7 180.1 153.6 142.9 133.5
Revenue/Transaction $0.53 $0.61 $0.66 $0.69 $0.72 $0.74 Payment
Services Revenue $47.8 $36.1 $35.4 $32.4 $31.3 $30.5 Transactions
86.6 81.0 85.9 80.8 76.5 72.3 Revenue/Transaction $0.55 $0.45 $0.41
$0.40 $0.41 $0.42 Total 293.3 270.7 266.0 234.4 219.4 205.8
Sequential Quarterly Growth 8% 2% 9% 7% 7% 25% Other Revenue(2)
$12.2 $11.2 $9.6 $8.8 $8.4 $8.6 e-Bill Delivery Electronic bills
distributed 46.7 45.2 42.7 36.8 32.8 29.6 Quarterly sequential
growth 3% 6% 4% 12% 11% 14% Electronic Rate Electronic payment rate
84% 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. DATASOURCE: CheckFree Corporation CONTACT: Media, Judy
DeRango Wicks, +1-678-375-1595, or , or Investors, Tina Moore,
+1-678-375-1278, or , both of CheckFree Corporation Web site:
http://www.checkfreecorp.com/
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