Checkfree Corp (MM) (NASDAQ:CKFR)
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CheckFree Announces Fiscal 2005 Second Quarter Results and Raises
Full-Year Expectations
ATLANTA, Jan. 20 /PRNewswire-FirstCall/ -- CheckFree Corporation (NASDAQ:CKFR)
today announced second quarter revenue of $185.8 million, representing 24
percent growth over the same period last year. The Company's GAAP (Generally
Accepted Accounting Principles) net income was $13.0 million, or $0.14 per
share, and underlying net income was $33.7 million, or $0.36 per share. Free
cash flow was $56.5 million for the quarter, as outlined in Attachment A.
GAAP Results: Net income for the second quarter was $13.0 million, compared to
a net loss of $1.9 million for the same quarter last year. Earnings per share
were $0.14 for the second quarter of fiscal 2005, compared to a loss per share
of $0.02 for the second quarter of last year. Net cash provided by operating
activities was $65.8 million for the second quarter of fiscal 2005, compared to
$41.4 million for the same period last year.
Underlying Results: Underlying net income for the second quarter was $33.7
million, compared to $23.4 million for the same quarter of last year.
Underlying earnings per share were $0.36 for the second quarter of fiscal 2005,
compared to $0.25 for the second quarter of last year. Underlying net income
and earnings per share exclude the amortization of acquisition-related
intangible assets and related tax benefits for the second quarters of fiscal
2004 and 2005, and for the second quarter of fiscal 2004, also primarily
exclude the cost of early redemption of our convertible debt and related tax
benefits. A reconciliation of CheckFree's underlying results to its GAAP
results is included in Attachment A.
"Each business delivered solid, focused performance this quarter, putting us
ahead of our expectations," said Pete Kight, CheckFree's Chairman and Chief
Executive Officer. "The Electronic Commerce division experienced steady growth
in transactions processed. We saw continued portfolio growth in the Investment
Services division as the separately managed accounts industry finds traction
within the domestic financial markets, and we delivered better-than-expected
license sales in our Software business."
"We believe we are well-positioned for continued solid execution for the
current fiscal year, which has allowed us to increase our projected earnings
for the full year," Kight concluded.
Second Quarter Highlights
The Company reported that its Electronic Commerce division processed 219.4
million transactions for the quarter, a 7 percent increase over the previous
quarter, and delivered 32.8 million electronic bills, an increase of 11 percent
over the previous quarter. The Company reported more than 1.7 million
portfolios under management in its Investment Services division.
Refer to Attachment B for details on the financial performance of CheckFree's
divisions in the second quarter of fiscal 2005, and Attachment C for electronic
billing and payment metrics.
Financial Outlook for the Third Quarter and the Fiscal Year
"For the third quarter of fiscal 2005, we expect revenue in the range of $187
to $192 million, and GAAP earnings per share in the range of $0.12 to $0.14,"
said CheckFree Chief Financial Officer, David Mangum. "This equates to
underlying earnings per share in the range of $0.34 to $0.36. We expect
sequential quarterly transaction growth for the upcoming quarter to be in the
range of 4 to 7 percent."
"Based on our strong performance through the first two quarters and our outlook
for the remainder of the year, we have increased our full-year expectations for
earnings per share to $0.46 to $0.50 on a GAAP basis, or $1.34 to $1.38 on an
underlying basis," he continued. "These expectations reflect an outlook for
continued growth in electronic billing and payment transactions, solid
performance from our Investment Services and Software businesses, and increased
investment spending in all three businesses."
"We now expect to generate more than $160 million in free cash flow for the
full year, exceeding our earlier expectations," Mangum concluded.
The difference between GAAP and underlying earnings expectations for fiscal
2005 and the third quarter of fiscal 2005 is due to expected
acquisition-related intangible amortization expense and related tax benefits.
Conference Call on the Internet
CheckFree will broadcast its second quarter conference call at 5:00 p.m. (ET)
today to review its financial results for the second quarter ended December 31,
2004, and its expectations for the third quarter of fiscal 2005 and for fiscal
2005. 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 more than $1 trillion in assets. CheckFree Software
develops, markets and supports software applications that are used by financial
institutions to process more than two-thirds of the 10 billion Automated
Clearing House transactions in the United States. The division also provides
global trade processing, reconciliation, financial messaging, compliance and
electronic billing and statement software to hundreds of organizations across
the globe.
Certain of the Company's statements in this press release are not purely
historical, and as such are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These include statements
regarding management's intentions, plans, beliefs, expectations or projections
of the future, and include statements in this document regarding forecasts and
expectations of revenue and earnings per share for the third quarter of fiscal
2005, earnings per share and free cash flow for fiscal 2005 as a whole, the
performance of each of our divisions in the third quarter of fiscal 2005 and
for fiscal 2005 as a whole, and sequential transaction growth in the third
quarter of fiscal 2005 (paragraphs 4, 5, 8, 9, 10 and 11). Forward-looking
statements involve risks and uncertainties, including without limitation, the
various risks inherent in the Company's business, and other risks and
uncertainties detailed from time to time in the Company's periodic reports
filed with the Securities and Exchange Commission, including the Company's
Annual Report on Form 10-K for the year ended June 30, 2004 (filed September 3,
2004) and Quarterly Report on Form 10-Q for the quarter ended September 30,
2004 (filed November 9, 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 Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Revenues:
Processing and servicing $164,188 $131,647 $323,030 $255,892
License fees 7,655 4,716 13,529 9,678
Maintenance fees 7,456 7,412 14,811 14,113
Other 6,457 6,161 12,219 11,517
Total revenues 185,756 149,936 363,589 291,200
Expenses:
Cost of processing, servicing
and support 72,688 60,798 148,050 120,086
Research and development 19,329 16,102 39,552 31,005
Sales and marketing 16,282 13,206 30,508 25,531
General and administrative 13,430 11,672 28,465 23,195
Depreciation and amortization 43,643 42,384 87,660 92,997
In-process research and
development - 324 - 324
Total expenses 165,372 144,486 334,235 293,138
Income (loss) from operations 20,384 5,450 29,354 (1,938)
Equity in net loss of joint
venture (700) - (1,347) -
Interest, net 1,490 (7,964) 3,186 (9,588)
Income (loss) before income taxes 21,174 (2,514) 31,193 (11,526)
Income tax expense (benefit) 8,131 (618) 11,943 (2,961)
Net income (loss) $13,043 $(1,896) $19,250 $(8,565)
Basic income (loss) per share:
Net income (loss) $0.14 $(0.02) $0.21 $(0.10)
Weighted average number of
shares 90,545 89,624 90,482 89,543
Diluted income (loss) per share:
Net income (loss) $0.14 $(0.02) $0.21 $(0.10)
Weighted average number of
shares 93,019 89,624 92,764 89,543
CHECKFREE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In thousands)
December 31, June 30,
2004 2004
Current assets:
Cash, cash equivalents and
investments $284,301 $208,029
Settlement assets 84,915 82,520
Accounts receivable, net 112,202 111,849
Prepaid expenses and other
assets 25,748 14,727
Deferred income taxes 20,694 49,129
Total current assets 527,860 466,254
Property and equipment, net 87,430 91,912
Capitalized software and intangible
assets, net 851,809 917,543
Investments 74,951 68,344
Other noncurrent assets 4,407 4,396
Deferred income taxes 10,094 -
Investment in joint venture 948 483
Total assets $1,557,499 $1,548,932
Current liabilities:
Accounts payable, accrued
liabilities and other $74,994 $83,637
Settlement obligations 83,578 82,611
Deferred revenues 39,852 36,193
Total current liabilities 198,424 202,441
Accrued rent and other 4,977 4,313
Deferred income taxes - 17,492
Capital leases and long-term
obligations, less current portion 25,373 25,504
Net stockholders' equity 1,328,725 1,299,182
Total liabilities and
stockholders' equity $1,557,499 $1,548,932
Attachment A
Calculation of Free Cash Flow
(Unaudited)
(In millions)
Three Months Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Net cash provided by operating
activities $65.8 $41.4 $97.5 $68.4
Excluding: Net change in settlement
accounts (0.1) - 1.4 -
Less: Capital expenditures (9.2) (3.7) (14.1) (9.1)
Free cash flow $56.5 $37.7 $84.8 $59.3
Additional Information:
Net cash provided by (used in)
investing activities $(8.7) $48.8 $(40.0) $(0.4)
Net cash provided by (used in)
financing activities $3.4 $(171.1) $4.2 $(170.7)
Use of Non-GAAP Financial Information
The Company supplements its reporting of cash flow information
determined in accordance with GAAP by using "free cash flow" in this
earnings release as a measure to evaluate its liquidity. The Company
defines free cash flow as GAAP net cash provided by operating
activities, exclusive of the net change in settlement accounts and
less capital expenditures. The Company believes free cash flow
provides useful information to management and investors in
understanding its financial results and assessing its prospects for
future performance. CheckFree also uses free cash flow as a factor in
determining long-term incentive compensation for senior management.
The Company excludes the net change in settlement accounts from free
cash flow because it believes this facilitates management's and
investors' ability to analyze operating cash flow trends. In
connection with its walk-in bill payment business, the Company's
balance sheet reflects settlement assets and settlement obligations.
The settlement assets represent payment receipts in transit to the
Company from agents, and the settlement obligations represent
scheduled but unpaid payments due to billers. Balances in settlement
accounts fluctuate daily based on deposit timing and payment
transaction volume. These timing differences are not reflective of
the Company's liquidity, and thus, CheckFree excludes the net change
in settlement accounts from free cash flow.
As a technology company, CheckFree makes significant capital
expenditures in order to update its technology and to remain
competitive. The Company's free cash flow reflects the amount of cash
it generated that remains, after it has met those operational needs,
for the evaluation and execution of strategic initiatives such as
acquisitions, stock and/or debt repurchases and other investing and
financing activities, including servicing additional debt
obligations.
Free cash flow does not solely represent residual cash flow available
for discretionary expenditures, as certain of CheckFree's non-
discretionary obligations are also funded out of free cash flow.
These consist primarily of payments on capital leases and other long-
term commitments, if any, as reflected in the table entitled
"Contractual Obligations" in the "Liquidity and Capital Resources"
section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in CheckFree's Annual
Report on Form 10-K for the fiscal year ended June 30, 2004, which
was filed with the Securities and Exchange Commission on September 3,
2004 and in CheckFree's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004, which was filed with the Securities and
Exchange Commission on November 9, 2004.
The Company's free cash flow should be considered in addition to, and
not as a substitute for, net cash provided by operating activities or
any other amount determined in accordance with GAAP. Further,
CheckFree's measure of free cash flow may not be comparable to
similarly titled measures reported by other companies.
Attachment A (continued)
Reconciliation of GAAP Income Net (Loss) to Underlying Net Income and Earnings
(Loss) Per Share
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Total revenues - GAAP and
underlying $185,756 $149,936 $363,589 $291,200
Net income (loss) per GAAP $13,043 $(1,896) $19,250 $(8,565)
Amortization of acquisition-
related intangible assets 33,211 32,099 66,426 72,593
Write off in-process research and
development - 324 - 324
Call premium and write off of
unamortized issuance costs for
convertible notes - 7,219 - 7,219
Tax benefit of underlying
adjustments (12,589) (14,388) (25,157) (28,854)
Underlying net income $33,665 $23,358 $60,519 $42,717
GAAP basic weighted average shares
outstanding 90,545 89,624 90,482 89,543
GAAP impact of dilutive options
and warrants 2,474 - 2,282 -
GAAP diluted weighted average
shares outstanding 93,019 89,624 92,764 89,543
Underlying basic weighted average
shares outstanding 90,545 89,624 90,482 89,543
Underlying impact of dilutive
options and warrants 2,474 2,000 2,282 1,962
Underlying diluted weighted
average shares outstanding 93,019 91,624 92,764 91,505
GAAP basic earnings (loss) per
share $0.14 $(0.02) $0.21 $(0.10)
GAAP diluted earnings (loss) per
share $0.14 $(0.02) $0.21 $(0.10)
Underlying basic earnings per
share $0.37 $0.26 $0.67 $0.48
Underlying diluted earnings per
share $0.36 $0.25 $0.65 $0.47
Use of Non-GAAP Financial Information
CheckFree supplements its reporting of revenue, income (loss) from
operations, net income (loss) and earnings (loss) per share
information determined in accordance with GAAP by using "underlying
revenue," "underlying income (loss) from operations," "underlying
net income (loss)" and "underlying earnings (loss) per share"
in this earnings release. Management believes that certain non-cash
adjustments to revenue or expense enhance the company's evaluation of
its performance, and are not pertinent to day to day operational
decision making in the business. Therefore, CheckFree excludes these
items from GAAP revenue, income (loss) from operations, net income
(loss) and earnings (loss) per share in calculating underlying
revenue, underlying income (loss) from operations, underlying net
income (loss) and underlying earnings (loss) per share.
Examples of such non-cash charges may include, but not be limited to,
intangible asset amortization expense and in-process research and
development costs associated with acquisitions, charges associated
with the impairment of intangible assets, charges resulting from
warrants issued to third parties, and charges associated with
reorganization activities, all offset by the cumulative tax impact of
these charges. CheckFree excludes these items in order to more
clearly focus on the factors it believes are pertinent to the daily
management of the company's operations, and management uses
underlying results to evaluate the impact of operational business
decisions. CheckFree regularly reports underlying results to its
Chairman and Chief Executive Officer, the company's chief operating
decision maker, who uses this information in allocating resources to
CheckFree's various business units. Additionally, as CheckFree
rewards its management for their decisions that increase revenue and
decrease controllable costs, incentive compensation for management,
and uses underlying revenue, underlying net income (loss) and
underlying earnings (loss) per share as factors in determining long-
term incentive compensation for management.
Because CheckFree utilizes underlying financial results in the
management of its business and to determine incentive compensation
for management, the company believes this supplemental information is
useful to investors for their independent evaluation and
understanding of the performance of the company's management and its
core business performance.
CheckFree's underlying revenue, underlying income (loss) from
operations, underlying net income (loss) and underlying earnings
(loss) per share should be considered in addition to, and not as a
substitute for, revenue, income (loss) from operations, net income
(loss) or earnings (loss) per share or any other amount determined in
accordance with GAAP. CheckFree's measures of underlying revenue,
underlying income (loss) from operations, underlying net income
(loss) and underlying earnings (loss) per share reflect management's
judgment of particular items, and may not be comparable to similarly
titled measures reported by other companies.
Attachment A (continued)
CHECKFREE CORPORATION AND SUBSIDIARIES
Supplemental Underlying Consolidated Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Revenues:
Processing and servicing $164,188 $131,647 $323,030 $255,892
License fees 7,655 4,716 13,529 9,678
Maintenance fees 7,456 7,412 14,811 14,113
Other 6,457 6,161 12,219 11,517
Total revenues 185,756 149,936 363,589 291,200
Expenses:
Cost of processing, servicing
and support 72,688 60,798 148,050 120,086
Research and development 19,329 16,102 39,552 31,005
Sales and marketing 16,282 13,206 30,508 25,531
General and administrative 13,430 11,672 28,465 23,195
Depreciation and amortization 10,432 10,285 21,234 20,404
Total expenses 132,161 112,063 267,809 220,221
Income from operations 53,595 37,873 95,780 70,979
Equity in net loss of joint
venture (700) - (1,347) -
Interest, net 1,490 (745) 3,186 (2,369)
Income before income taxes 54,385 37,128 97,619 68,610
Income tax expense 20,720 13,770 37,100 25,893
Net income $33,665 $23,358 $60,519 $42,717
Basic income per share:
Net income $0.37 $0.26 $0.67 $0.48
Equivalent number of shares 90,545 89,624 90,482 89,543
Diluted income per share:
Net income $0.36 $0.25 $0.65 $0.47
Equivalent number of shares 93,019 91,624 92,764 91,505
Attachment B
Reconciliation of GAAP Results to Underlying Results by Segment
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Electronic Commerce:
Total revenues - GAAP and
underlying $142,108 $112,488 $280,315 $219,043
Operating income per GAAP $18,320 $7,912 $32,708 $2,313
Amortization of acquisition
related intangible assets 32,559 31,049 65,122 70,570
Underlying operating income $50,879 $38,961 $97,830 $72,883
Investment Services:
Total revenues - GAAP and
underlying $23,972 $21,465 $46,815 $41,758
Operating income per GAAP $5,473 $4,377 $7,882 $9,063
Amortization of acquisition
related intangible assets 151 231 302 463
Underlying operating income $5,624 $4,608 $8,184 $9,526
Software:
Total revenues - GAAP and
underlying $19,676 $15,983 $36,459 $30,399
Operating income per GAAP $6,168 $2,422 $6,300 $3,909
Amortization of acquisition
related intangible assets 501 819 1,002 1,560
Write off in-process research and
development - 324 - 324
Underlying operating income $6,669 $3,565 $7,302 $5,793
Corporate:
Operating loss per GAAP and
underlying $(9,577) $(9,261) $(17,536) $(17,223)
Attachment C
Electronic Billing and Payment Metrics
(In millions, except revenue/transaction and percentages)
Quarter Ended
12/31/04 9/30/04 6/30/04 3/31/04 12/31/03
Transactions
Full Service
Revenue $102.4 $99.1 $96.2 $94.0 $91.8
Active Subscribers(1) 6.9 6.4 5.9 5.5 5.0
Transactions 142.9 133.5 123.9 115.5 106.1
Revenue/Transaction $0.72 $0.74 $0.78 $0.81 $0.87
Payment Services(2)
Revenue $31.3 $30.5 $14.0 $12.8 $12.0
Transactions 76.5 72.3 41.3 36.7 33.1
Revenue/Transaction $0.41 $0.42 $0.34 $0.35 $0.36
Total 219.4 205.8 165.2 152.2 139.2
Sequential Quarterly Growth 7% 25% 8% 9% 10%
Other Revenue(3) $8.4 $8.6 $8.3 $8.4 $8.7
e-Bill Delivery
Electronic bills distributed 32.8 29.6 25.9 22.5 18.5
Quarterly sequential growth 11% 14% 15% 22% 26%
Electronic Rate
Electronic payment rate 83% 83% 79% 78% 78%
(1) "Active" refers to subscribers who have viewed or paid a bill in the
last 90 days at a Consumer Service Provider that outsources
essentially all of its electronic billing and payment (EBP) functions
to CheckFree.
(2) Payment Services includes walk-in bill payment results beginning
June 23, 2004.
(3) Other revenue includes Health and Fitness, Professional Services and
Stored Value Products.
DATASOURCE: CheckFree Corporation
CONTACT: Media relations, Judy DeRango Wicks, +1-678-375-1595, or
, Investor relations, Tina Moore, +1-678-375-1278, or
, both of CheckFree Corporation
Web site: http://www.checkfreecorp.com/