Home Page ContentPress Releases Comverse Announces Fiscal 2013 Third Quarter Results; Conference Call to be Held Today at 8:00 AM

Comverse Announces Fiscal 2013 Third Quarter Results; Conference Call to be Held Today at 8:00 AM

by david.nunes

Comverse Announces Fiscal 2013 Third Quarter Results; Conference Call to be Held Today at 8:00 AM

WAKEFIELD, Mass., Dec. 12, 2013 – Comverse, Inc. (“Comverse”) (Nasdaq:CNSI) today announced its results for the three months ended October 31, 2013.

Consolidated Highlights: Below is selected consolidated financial information for the three and nine months ended October 31, 2013 and 2012, prepared in accordance with generally accepted accounting principles (“GAAP”), except as noted.

Comverse, Inc.:Three Months Ended October 31,Nine Months Ended October 31,
(In thousands)2013201220132012
Total revenue$ 160,416$ 185,200$ 485,987$ 494,176
Costs and expenses
Cost of revenue95,888118,171290,336316,772
Research and development, net17,53620,37950,47659,243
Selling, general and administrative31,28339,756103,342119,253
Other operating expenses1,0055,5827,8596,689
Total costs and expenses145,712183,888452,013501,957
Income (loss) from operations14,7041,31233,974(7,781)
Expense adjustments5,63412,33310,22026,294
Comverse performance (1)20,33813,64544,19418,513
Income (loss) before income tax benefit (expense)11,8161,19926,361(11,973)
Income tax benefit (expense)11,320(11,774)(23,452)(19,098)
Net (loss) income from continuing operations23,136(10,575)2,909(31,071)
Basic earnings (loss) per share from continuing operations$ 1.04$ (0.48)$ 0.13$ (1.42)
Diluted earnings (loss) per share from continuing operations$ 1.03$ (0.48)$ 0.13$ (1.42)
Interest expense(211)(218)(565)(594)
Depreciation and Amortization$ (4,753)$ (7,838)$ (14,070)$ (23,793)
Operating Margin9.2%0.7%7.0%(1.6)%
Comverse performance margin12.7%7.4%9.1%3.7%
Net cash (used in) provided by operating activities – continuing operations (2)$ (15,028)$ 21,089$ (5,387)$ (29,407)
(1) “Comverse performance” has not been prepared in accordance with GAAP. See “Presentation of Non-GAAP Financial Measures” below.
(2) Includes approximately $10.9 million of cash proceeds related to an Italian VAT refund received during the nine months ended October 31, 2013.

“Our continued focus on driving increased operational efficiency contributed to strong and improved profit margins in the third quarter.  In addition, while capex spend among carriers continues to be highly scrutinized, we are pleased with the continued improvement in our overall global sales pipeline,” said Philippe Tartavull, President & CEO of Comverse, Inc. “We believe Comverse’s differentiated products, proven track record and global presence positions us well to capitalize on our multi-billion dollar market opportunity.”

“As previously disclosed, the tax provision is subject to significant quarter-to-quarter variability based on numerous factors. From a full year perspective we currently expect our tax provision to be in the range of $27 million to $32 million and our cash taxes to be between $17 million and $20 million,” said Tom Sabol, CFO of Comverse, Inc.

Business Segment Highlights:

Three Months Ended October 31,Nine Months Ended October 31,
2013201220132012
(Dollars in thousands)
SEGMENT RESULTS
Comverse BSS
Segment revenue$ 67,323$ 65,947$ 207,451$ 192,679
Gross margin40.5%29.4%38.0%33.7%
Income from operations13,0386,86037,27725,889
Operating margin19.4%10.4%18.0%13.4%
Segment performance13,72910,83839,49838,617
Segment performance margin20.4%16.4%19.0%20.0%
Comverse VAS
Segment revenue$ 84,255$ 111,457$ 248,754$ 268,668
Gross margin48.8%48.5%47.5%46.3%
Income from operations33,27543,87994,28290,899
Operating margin39.5%39.4%37.9%33.8%
Segment performance33,27543,87994,28991,815
Segment performance margin39.5%39.4%37.9%34.2%
Comverse Other (a)
Segment revenue$ 8,838$ 7,796$ 29,782$ 32,829
Gross margin(43.6)%(82.5)%(4.4)%(36.5)%
Loss from operations(31,609)(49,427)(97,585)(124,569)
Operating margin(357.6)%(634.0)%(327.7)%(379.4)%
Segment performance(26,666)(41,072)(89,593)(111,919)
Segment performance margin(301.7)%(526.8)%(300.8)%(340.9)%
(a) Consists of all of our operations other than the Comverse BSS and Comverse VAS segments, including Comverse Mobile Internet, Comverse’s Netcentrex operations, and Comverse’s global corporate functions that support its business units.

Selected Balance Sheet Highlights: Below is selected balance sheet data:

As of
(In millions)October 31, 2013July 31, 2013
Cash and cash equivalents$ 244.2$ 264.0
Restricted cash (including long-term restricted cash) and bank time deposits69.269.1
Total$ 313.4$ 333.1

Conference Call Details

Comverse will be conducting a conference call today, December 12, 2013 at 8:00 a.m. EST. To listen to the conference call live, dial 678-825-8369. Please dial-in at least five minutes before the scheduled start time. A live webcast can be accessed at www.comverse.com.

A replay of the call will be available, beginning at approximately 11:00 a.m. on December 12, 2013 for two days, at 404-537-3406, and archived via webcast at www.comverse.com. The replay access code is 20754015.

Segment Performance

We evaluate our business by assessing the performance of each of our operating segments. Our Chief Executive Officer is our chief operating decision maker (“CODM”). The CODM uses segment performance, as defined below, as the primary basis for assessing the financial results of the operating segments and for the allocation of resources. Segment performance, as we define it in accordance with the Financial Accounting Standard Board’s (“FASB”) guidance relating to segment reporting, is not necessarily comparable to other similarly titled captions of other companies.

Segment performance is computed by management as income (loss) from operations adjusted for the following: (i) stock-based compensation expense; (ii) amortization of acquisition-related intangibles; (iii) compliance-related professional fees; (iv) compliance-related compensation and other expenses; (v) impairment of goodwill; (vi) impairment of property and equipment; (vii) certain litigation settlements and related costs; (viii) Italian VAT refund recovery recorded within operating expenses; (ix) restructuring expenses; and (x) certain other gains and expenses. Compliance-related professional fees and compliance-related compensation and other expenses relate to fees and expenses recorded in connection with CTI’s and our efforts to (a) complete certain financial statements and audits of such financial statements and (b) remediate material weaknesses in internal control over financial reporting.

Presentation of Non-GAAP Financial Measures

We provide Comverse performance, a non-GAAP financial measure, as additional information for our operating results. This measure is not in accordance with, or an alternative for, GAAP financial measures and may be different from, or not comparable to similarly titled or other non-GAAP financial measures used by other companies. We believe that the presentation of this non-GAAP financial measure provides useful information to investors regarding certain additional financial and business trends relating to our results of operations as viewed by management in monitoring our businesses, reviewing financial results and for planning purposes. See “Consolidated Reconciliation of GAAP to Non-GAAP Financial Measures” below.

About Comverse, Inc.

Comverse® is a leading provider of telecom business enablement solutions that support service innovation and smart monetization through a rich portfolio of BSS, Data Management and Monetization, Digital Services, Value Added Services, IP Communications and Professional Services. Comverse’s extensive customer base spans more than 125 countries and covers over 450 communication service providers serving more than two billion subscribers. Our innovative product portfolio enables communication service providers to unleash the value of the network for their customers by making their networks smarter. Comverse’s solutions are available in a variety of delivery models, including on-site, cloud, hosted and managed services.

COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share data)
Three Months Ended October 31,Nine Months Ended October 31,
2013201220132012
Revenue:
Product revenue$ 49,413$ 70,926$ 158,808$ 170,465
Service revenue111,003114,274327,179323,711
Total revenue160,416185,200485,987494,176
Costs and expenses:
Product costs23,55136,36779,93688,300
Service costs72,33781,804210,400228,472
Research and development, net17,53620,37950,47659,243
Selling, general and administrative31,28339,756103,342119,253
Other operating expenses:
Impairment of goodwill5,6055,605
Restructuring expenses1,005(23)7,8591,084
Total other operating expenses1,0055,5827,8596,689
Total costs and expenses145,712183,888452,013501,957
Income (loss) from operations14,7041,31233,974-7,781
Interest income121163436606
Interest expense(211)(218)(565)(594)
Interest expense on notes payable to CTI(205)(455)
Other (expense) income, net(2,798)147(7,484)(3,749)
Income (loss) before income tax benefit (expense)11,8161,19926,361(11,973)
Income tax benefit (expense)11,320(11,774)(23,452)(19,098)
Net income (loss) from continuing operations23,136(10,575)2,909(31,071)
Income from discontinued operations, net of tax21,83126,542
Net income (loss)23,13611,2562,909(4,529)
Less: Net income attributable to noncontrolling interest(157)(1,167)
Net income (loss) attributable to Comverse, Inc.$ 23,136$ 11,099$ 2,909$ (5,696)
Weighted average common shares outstanding:
Basic22,218,60021,923,24122,138,38921,923,241
Diluted22,412,26721,923,24122,312,00921,923,241
Net income (loss) attributable to Comverse, Inc.
Net income (loss) from continuing operations$ 23,136$ (10,575)$ 2,909$ (31,071)
Income from discontinued operations, net of tax21,67425,375
Net income (loss) attributable to Comverse, Inc.$ 23,136$ 11,099$ 2,909$ (5,696)
Earnings (loss) per share attributable to Comverse, Inc.’s stockholders:
Basic earnings (loss) per share
Continuing operations$ 1.04$ (0.48)$ 0.13$ (1.42)
Discontinued operations0.991.16
Basic earnings (loss) per share$ 1.04$ 0.51$ 0.13$ (0.26)
Diluted earnings (loss) per share
Continuing operations$ 1.03$ (0.48)$ 0.13$ (1.42)
Discontinued operations0.991.16
Diluted earnings (loss) per share$ 1.03$ 0.51$ 0.13$ (0.26)
COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share data)
October 31,January 31,
20132013
ASSETS
Current assets:
Cash and cash equivalents$ 244,186$ 262,921
Restricted cash and bank time deposits33,35428,484
Accounts receivable, net of allowance of $8,155 and $8,841, respectively85,040123,612
Inventories17,69024,800
Deferred cost of revenue25,04034,031
Deferred income taxes11,55317,938
Prepaid expenses and other current assets30,90635,119
Total current assets447,769526,905
Property and equipment, net40,38237,442
Goodwill150,103149,987
Intangible assets, net5,8407,909
Deferred cost of revenue50,78272,121
Deferred income taxes8,3909,421
Restricted cash – long-term35,89514,030
Other assets43,918$ 39,975
Total assets$ 783,079$ 857,790
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses$ 165,319$ 185,611
Deferred revenue259,842320,347
Deferred income taxes6,8297,689
Income taxes payable6,6778,538
Total current liabilities438,667522,185
Deferred revenue113,264143,725
Deferred income taxes50,68141,767
Other long-term liabilities166,989168,876
Total liabilities769,601876,553
Commitments and contingencies
Equity:
Comverse, Inc. stockholders’ equity:
Common stock, $0.01 par value – authorized, 100,000,000 shares; issued 22,257,546 and 21,934,569 shares, respectively; outstanding, 22,227,077 and 21,933,427 shares, respectively223219
Treasury stock, at cost, 30,469 and 1,142 shares, respectively(853)(33)
Accumulated deficit(40,028)(42,937)
Additional paid in capital32,0702,237
Accumulated other comprehensive income22,06621,751
Total equity13,478(18,763)
Total liabilities and equity$ 783,079$ 857,790
COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended October 31,
20132012
Cash flows from operating activities:
Net income (loss)$ 2,909$ (4,529)
Net income from discontinued operations(26,542)
Non-cash operating items:
Depreciation and amortization14,07023,793
Impairment of goodwill5,605
Provision for doubtful accounts824386
Stock-based compensation expense8,0115,512
Deferred income taxes15,050(6,255)
Inventory write-downs3,9164,755
Other non-cash items, net(1,355)1,243
Changes in assets and liabilities:
Accounts receivable37,15619,751
Inventories(19)(8,321)
Deferred cost of revenue30,32225,254
Prepaid expense and other current assets(433)9,761
Accounts payable and accrued expense(16,870)(6,737)
Accrued income taxes(1,379)5,852
Deferred revenue(89,955)(90,426)
Tax contingencies(4,624)11,109
Other assets and liabilities(3,010)382
Net cash used in operating activities – continuing operations(5,387)(29,407)
Net cash used in operating activities – discontinued operations(1,277)
Net cash used in operating activities(5,387)(30,684)
Cash flows from investing activities:
Proceeds from sale of Starhome B.V., net of cash sold of $30.9 million6,340
Purchases of property and equipment(9,832)(3,896)
Net change in restricted cash and bank time deposits(27,324)(5,300)
Proceeds from asset sales78309
Other, net843(683)
Net cash used in investing activities(36,235)(3,230)
Cash flows from financing activities:
Decrease in net investment by CTI(285)
Borrowings under note payable to CTI9,500
CTI capital contribution25,00038,500
Repurchase of common stock(820)
Proceeds from exercises of stock options846
Other, net(35)
Net cash provided by financing activities25,02647,680
Effects of exchange rates on cash and cash equivalents(2,139)(1,708)
Net (decrease) increase in cash and cash equivalents(18,735)12,058
Cash and cash equivalents, beginning of period including cash from discontinued operations262,921193,192
Cash and cash equivalents, end of period$ 244,186$ 205,250
COMVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Table of Reconciliation from GAAP Income (loss) from operations to Non GAAP Comverse PerformanceThree Months Ended October 31,Nine Months Ended October 31,
(Dollars in thousands)2013201220132012
Income (loss) from operations$ 14,704$ 1,312$ 33,974$ (7,781)
Expense Adjustments:
Stock-based compensation expense2,6681,8808,0115,512
Amortization of acquisition-related intangibles6923,9762,07012,048
Compliance-related professional fees7441761,550189
Compliance-related compensation and other expenses(44)2881631,841
Impairment of goodwill5,6055,605
Impairment of property and equipment2081525150
Certain litigation settlements and related costs8413(15)170
Italian VAT refund recovery recorded within operating expenses(10,861)
Restructuring expenses1,005(23)7,8591,084
Gain on sale of fixed assets(14)(32)
Other, net36731,224(205)
Total expense adjustments5,63412,33310,22026,294
Comverse performance$ 20,338$ 13,645$ 44,194$ 18,513
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSSComverse VASComverse OtherConsolidated
(In thousands)
Three Months Ended October 31, 2013
Total revenue$ 67,323$ 84,255$ 8,838$ 160,416
Total costs and expenses$ 54,285$ 50,980$ 40,447$ 145,712
Income (loss) from operations$ 13,038$ 33,275$ (31,609)$ 14,704
Computation of segment performance:
Segment revenue$ 67,323$ 84,255$ 8,838
Total costs and expenses$ 54,285$ 50,980$ 40,447
Segment expense adjustments:
Stock-based compensation expense2,668
Amortization of acquisition-related intangibles692
Compliance-related professional fees744
Compliance-related compensation and other expenses(44)
Impairment of property and equipment208
Certain litigation settlements and related costs8
Restructuring expenses1,005
Gain (loss) on sale of fixed assets(1)(13)
Other, net367
Segment expense adjustments6914,943
Segment expenses53,59450,98035,504
Segment performance$ 13,729$ 33,275$ (26,666)
Interest expense$ —$ —$ (211)$ (211)
Depreciation and amortization$ (1,515)$ (1,247)$ (1,991)$ (4,753)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSSComverse VASComverse OtherConsolidated
(In thousands)
Three Months Ended October 31, 2012
Total revenue$ 65,947$ 111,457$ 7,796$ 185,200
Total costs and expenses$ 59,087$ 67,578$ 57,223$ 183,888
Income (loss) from operations$ 6,860$ 43,879$ (49,427)$ 1,312
Computation of segment performance:
Segment revenue$ 65,947$ 111,457$ 7,796
Total costs and expenses$ 59,087$ 67,578$ 57,223
Segment expense adjustments:
Stock-based compensation expense1,880
Amortization of acquisition-related intangibles3,976
Compliance-related professional fees176
Compliance-related compensation and other expenses288
Impairment of goodwill5,605
Impairment of property and equipment15
Certain litigation settlements and related costs413
Restructuring expenses(23)
Other, net21
Segment expense adjustments3,9788,355
Segment expenses55,10967,57848,868
Segment performance$ 10,838$ 43,879$ (41,072)
Interest expense$ —$ —$ (218)$ (218)
Depreciation and amortization$ (4,780)$ (1,243)$ (1,815)$ (7,838)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSSComverse VASComverse OtherConsolidated
(In thousands)
Nine Months Ended October 31, 2013
Total revenue$ 207,451$ 248,754$ 29,782$ 485,987
Total costs and expenses$ 170,174$ 154,472$ 127,367$ 452,013
Income (loss) from operations$ 37,277$ 94,282$ (97,585)$ 33,974
Computation of segment performance:
Segment revenue$ 207,451$ 248,754$ 29,782
Total costs and expenses$ 170,174$ 154,472$ 127,367
Segment expense adjustments:
Stock-based compensation expense8,011
Amortization of acquisition-related intangibles2,070
Compliance-related professional fees1,550
Compliance-related compensation and other expenses122734
Impairment of property and equipment291221
Certain litigation settlements and related costs(15)
Italian VAT recovery recorded within operating expense(10,861)
Restructuring expenses7,859
Gain on sale of fixed assets(1)(31)
Other, net1,224
Segment expense adjustments2,22177,992
Segment expenses167,953154,465119,375
Segment performance$ 39,498$ 94,289$ (89,593)
Interest expense$ —$ —$ (565)$ (565)
Depreciation and amortization$ (4,549)$ (3,712)$ (5,809)$ (14,070)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSSComverse VASComverse OtherConsolidated
(In thousands)
Nine Months Ended October 31, 2012
Total revenue$ 192,679$ 268,668$ 32,829$ 494,176
Total costs and expenses$ 166,790$ 177,769$ 157,398$ 501,957
Income (loss) from operations$ 25,889$ 90,899$ (124,569)$ (7,781)
Computation of segment performance:
Segment revenue$ 192,679$ 268,668$ 32,829
Total costs and expenses$ 166,790$ 177,769$ 157,398
Segment expense adjustments:
Stock-based compensation expense5,512
Amortization of acquisition-related intangibles12,048
Compliance-related professional fees189
Compliance-related compensation and other expenses678916247
Impairment of goodwill5,605
Impairment of property and equipment50
Certain litigation settlements and related costs170
Restructuring expenses1,084
Other, net2(207)
Segment expense adjustments12,72891612,650
Segment expenses154,062176,853144,748
Segment performance$ 38,617$ 91,815$ (111,919)
Interest expense$ —$ —$ (594)$ (594)
Depreciation and amortization$ (14,443)$ (3,688)$ (5,662)$ (23,793)

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