Comverse Announces Fiscal 2014 First Quarter Results; Conference Call to Be Held Today at 8:00 AM
WAKEFIELD, Mass., June 9, 2014 (GLOBE NEWSWIRE) – Comverse, Inc. (“Comverse”); (Nasdaq:CNSI) today announced its results for the three months ended April 30, 2014.
Consolidated Highlights: Below is selected consolidated financial information for the three months ended April 30, 2014 and 2013, prepared in accordance with generally accepted accounting principles (“GAAP”), except as noted.
Comverse, Inc.: | Three Months Ended April 30, | |
(In thousands) | 2014 | 2013 |
Total revenue | $ 119,132 | $ 155,818 |
Costs and expenses |
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Cost of revenue | 80,464 | 90,964 |
Research and development, net | 15,532 | 16,080 |
Selling, general and administrative | 34,145 | 36,710 |
Other operating expenses | 2,743 | 4,221 |
Total costs and expenses | 132,884 | 147,975 |
(Loss) income from operations | (13,752) | 7,843 |
Expense adjustments | 8,230 | (2,116) |
Comverse performance (1) | (5,522) | 5,727 |
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(Loss) income before income tax expense | (11,793) | 1,697 |
Income tax expense | (4,338) | (4,837) |
Net loss | (16,131) | (3,140) |
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Basic and diluted loss per share | $ (0.72) | $ (0.14) |
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Interest expense | (123) | (188) |
Depreciation and amortization | $ (4,739) | $ (4,569) |
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Operating margin | (11.5)% | 5.0% |
Comverse performance margin | (4.6)% | 3.7% |
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Net cash (used in) provided by operating activities (2) | $ (35,599) | $ 9,863 |
(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 three months ended April 30, 2013.
“Our first quarter results are indicative of the ongoing transformation underway at Comverse,” said Philippe Tartavull, President & CEO of Comverse, Inc. “While the benefits of our transformation efforts are not yet fully reflected in our financial results, I am pleased with the progress we have made in repositioning Comverse and the strategic direction we have decided to pursue. Our overall approach is focused on decreasing the Total Cost of Ownership as well as providing additional application platforms to improve the efficiency and increase the revenues of our customers while significantly increasing the percentage of our recurring revenue.”
Business Segment Highlights:
| Three Months Ended April 30, | |
| 2014 | 2013 |
| (Dollars in thousands) | |
SEGMENT RESULTS |
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BSS |
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Segment revenue | $ 56,872 | $ 76,264 |
Gross margin | 38.1% | 40.1% |
Income from operations | 6,455 | 15,701 |
Operating margin | 11.4% | 20.6% |
Segment performance | 7,152 | 16,498 |
Segment performance margin | 12.6% | 21.6% |
Digital Services |
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|
Segment revenue | $ 62,260 | $ 79,554 |
Gross margin | 40.0% | 38.4% |
Income from operations | 18,392 | 22,842 |
Operating margin | 29.5% | 28.7% |
Segment performance | 18,394 | 22,899 |
Segment performance margin | 29.5% | 28.8% |
All Other |
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|
Loss from operations | (38,599) | (30,700) |
Segment performance | (31,068) | (33,670) |
Selected Balance Sheet Highlights: Below is selected balance sheet data:
| As of | |
(In millions) | April 30, 2014 | January 31, 2014 |
Cash and cash equivalents | $ 210.1 | $ 254.6 |
Restricted cash (including long-term restricted cash) and bank deposits | 73.5 | 68.2 |
Total | $ 283.6 | $ 322.8 |
Conference Call Details
Comverse will be conducting a conference call today, June 9, 2014 at 8:00 a.m. EDT. To listen to the conference call live, dial (678) 825-8369. The identification code is 51839253. 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 am on June 9, 2014 for two days, at 855-859-2056 or 800-585-8367, and archived via webcast at www.comverse.com. The replay access code is 51839253.
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 Standards 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 intangible assets; (iii) compliance-related professional fees; (iv) compliance-related compensation and other expenses; (v) strategic-related costs (vi) impairment of property and equipment; (vii) certain litigation settlements and related costs; (viii) Italian VAT recovery recorded within operating expense; (ix) restructuring expenses; and (x) certain other gains and expenses. Compliance-related professional fees relate to fees and expenses recorded in connection with our efforts to remediate material weaknesses in internal control over financial reporting for the fiscal year ended January 31, 2014.
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 global provider of telecom business solutions that enable communication service provider success in the hyper-connected world through service innovation and smart monetization. The company’s proven and innovative product portfolio includes BSS, Policy Management (PCRF) and Enforcement, and Digital Services – all backed by Managed and Professional Services. Comverse’s extensive customer base spans more than 125 countries with solutions successfully delivered to over 450 communication service providers serving more than two billion subscribers. Comverse’s solutions are available in a variety of delivery models, including on-site, cloud, hosted/SaaS and managed services. For more information, visit www.comverse.com.
These risks and uncertainties discussed above, as well as others, are discussed in greater detail in our filings with the SEC. The documents and reports we file with the SEC are available through us, or our website, www.comverse.com, or through the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) at www.sec.gov.
COMVERSE, INC. AND SUBSIDIARIES | ||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||
(UNAUDITED) | ||
(In thousands, except share and per share data) | ||
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| Three Months Ended April 30, | |
| 2014 | 2013 |
Revenue: |
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Product revenue | $ 27,355 | $ 52,904 |
Service revenue | 91,777 | 102,914 |
Total revenue | 119,132 | 155,818 |
Costs and expenses: |
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|
Product costs | 14,805 | 27,634 |
Service costs | 65,659 | 63,330 |
Research and development, net | 15,532 | 16,080 |
Selling, general and administrative | 34,145 | 36,710 |
Other operating expenses: |
|
|
Restructuring expenses | 2,743 | 4,221 |
Total other operating expenses | 2,743 | 4,221 |
Total costs and expenses | 132,884 | 147,975 |
(Loss) income from operations | (13,752) | 7,843 |
Interest income | 115 | 172 |
Interest expense | (123) | (188) |
Foreign currency transaction gain (loss), net | 2,019 | (5,916) |
Other expense, net | (52) | (214) |
(Loss) income before income tax expense | (11,793) | 1,697 |
Income tax expense | (4,338) | (4,837) |
Net loss | $ (16,131) | $ (3,140) |
Weighted average common shares outstanding: |
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Basic and diluted | 22,293,980 | 22,005,506 |
Loss per share: |
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Basic and diluted loss per share | $ (0.72) | $ (0.14) |
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COMVERSE, INC. AND SUBSIDIARIES | ||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
(UNAUDITED) | ||
(In thousands, except share and per share data) | ||
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| April 30, | January 31, |
| 2014 | 2014 |
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ 210,096 | $ 254,580 |
Restricted cash and bank deposits | 39,253 | 34,343 |
Accounts receivable, net of allowance of $5,796 and $6,945, respectively | 107,976 | 89,361 |
Inventories | 16,931 | 16,166 |
Deferred cost of revenue | 13,282 | 14,500 |
Deferred income taxes | 2,269 | 2,329 |
Prepaid expenses | 19,460 | 17,000 |
Other current assets | 10,925 | 1,680 |
Total current assets | 420,192 | 429,959 |
Property and equipment, net | 43,239 | 41,541 |
Goodwill | 150,623 | 150,346 |
Intangible assets, net | 4,513 | 5,153 |
Deferred cost of revenue | 41,124 | 45,717 |
Deferred income taxes | 1,575 | 1,720 |
Long-term restricted cash | 34,265 | 33,815 |
Other assets | 39,532 | 40,586 |
Total assets | $ 735,063 | $ 748,837 |
LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses | $ 162,656 | $ 168,406 |
Deferred revenue | 251,798 | 239,902 |
Deferred income taxes | 594 | 514 |
Income taxes payable | 1,348 | 2,102 |
Total current liabilities | 416,396 | 410,924 |
Deferred revenue | 106,222 | 113,426 |
Deferred income taxes | 44,603 | 43,735 |
Other long-term liabilities | 150,910 | 147,942 |
Total liabilities | 718,131 | 716,027 |
Commitments and contingencies |
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Equity: |
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Common stock, $0.01 par value – authorized, 100,000,000 shares; issued 22,457,981 and 22,286,123 shares, respectively; outstanding, 22,411,951 and 22,251,226 shares, respectively | 225 | 223 |
Treasury stock, at cost, 46,030 and 34,897 shares, respectively | (1,410) | (1,024) |
Accumulated deficit | (40,382) | (24,251) |
Additional paid in capital | 37,506 | 34,530 |
Accumulated other comprehensive income | 20,993 | 23,332 |
Total equity | 16,932 | 32,810 |
Total liabilities and equity | $ 735,063 | $ 748,837 |
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COMVERSE, INC. AND SUBSIDIARIES | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(UNAUDITED) | ||
(In thousands) | ||
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| Three Months Ended April 30, | |
| 2014 | 2013 |
Cash flows from operating activities: |
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Net loss | $ (16,131) | $ (3,140) |
Non-cash operating items: |
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Depreciation and amortization | 4,739 | 4,571 |
Provision for doubtful accounts | 254 | 238 |
Stock-based compensation expense | 2,938 | 3,094 |
Deferred income taxes | 1,150 | 1,260 |
Inventory write-downs | 868 | 415 |
Other non-cash items, net | 71 | (376) |
Changes in assets and liabilities: |
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|
Accounts receivable | (17,720) | 8,120 |
Inventories | (2,652) | (1,056) |
Deferred cost of revenue | 5,822 | 10,544 |
Prepaid expense and other current assets | (11,173) | 1,250 |
Accounts payable and accrued expense | (9,755) | (11,996) |
Income taxes | (267) | (4,649) |
Deferred revenue | 3,404 | (5,532) |
Tax contingencies | 2,479 | 3,384 |
Other assets and liabilities | 374 | 3,736 |
Net cash (used in) provided by operating activities | (35,599) | 9,863 |
Cash flows from investing activities: |
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Purchases of property and equipment | (3,309) | (3,038) |
Net change in restricted cash and bank deposits | (4,774) | (25,000) |
Proceeds from asset sales | 9 | 47 |
Net cash used in investing activities | (8,074) | (27,991) |
Cash flows from financing activities: |
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|
CTI capital contribution | — | 25,000 |
Repurchase of common stock | (386) | (629) |
Proceeds from exercises of stock options | 40 | 25 |
Net cash (used in) provided by financing activities | (346) | 24,396 |
Effects of exchange rates on cash and cash equivalents | (465) | (687) |
Net (decrease) increase in cash and cash equivalents | (44,484) | 5,581 |
Cash and cash equivalents, beginning of period | 254,580 | 262,921 |
Cash and cash equivalents, end of period | $ 210,096 | $ 268,502 |
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COMVERSE, INC. AND SUBSIDIARIES | ||
CONSOLIDATED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES | ||
(UNAUDITED) | ||
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Table of Reconciliation from GAAP Income (loss) from operations to Non GAAP Comverse Performance | Three Months Ended April 30, | |
(Dollars in thousands) | 2014 | 2013 |
(Loss) income from operations | $ (13,752) | $ 7,843 |
Expense Adjustments: |
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|
Stock-based compensation expense | 2,938 | 3,094 |
Amortization of intangible assets | 695 | 649 |
Compliance-related professional fees | 369 | 436 |
Compliance-related compensation and other expenses | (70) | 52 |
Strategic related costs | 1,290 | — |
Impairment of property and equipment | 9 | 38 |
Certain litigation settlements and related costs | (36) | (24) |
Italian VAT refund recovery recorded within operating expenses | — | (10,861) |
Restructuring expenses | 2,743 | 4,221 |
Gain on sale of fixed assets | (3) | (11) |
Other | 295 | 290 |
Total expense adjustments | 8,230 | (2,116) |
Comverse performance | $ (5,522) | $ 5,727 |
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COMVERSE, INC. AND SUBSIDIARIES | ||||
BUSINESS SEGMENT INFORMATION | ||||
(UNAUDITED) | ||||
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| Digital |
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| BSS | Services | All Other | Consolidated |
| (In thousands) | |||
Three Months Ended April 30, 2014 |
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Total revenue | $ 56,872 | $ 62,260 | $ — | $ 119,132 |
Total costs and expenses | $ 50,417 | $ 43,868 | $ 38,599 | $ 132,884 |
Income (loss) from operations | $ 6,455 | $ 18,392 | $ (38,599) | $ (13,752) |
Computation of segment performance: |
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Segment revenue | $ 56,872 | $ 62,260 | $ — |
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Total costs and expenses | $ 50,417 | $ 43,868 | $ 38,599 |
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Segment expense adjustments: |
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Stock-based compensation expense | — | — | 2,938 |
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Amortization of intangibles assets | 695 | — | — |
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Compliance-related professional fees | — | — | 369 |
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Compliance-related compensation and other expenses | — | 1 | (71) |
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Strategic evaluation related costs | — | — | 1,290 |
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Impairment of property and equipment | — | — | 9 |
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Certain litigation settlements and related cost | — | — | (36) |
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Restructuring expenses | — | — | 2,743 |
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Gain on sale of fixed assets | 2 | 1 | (6) |
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Other | — | — | 295 |
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Segment expense adjustments | 697 | 2 | 7,531 |
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Segment expenses | 49,720 | 43,866 | 31,068 |
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Segment performance | $ 7,152 | $ 18,394 | $ (31,068) |
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Interest expense | $ — | $ — | $ (123) | $ (123) |
Depreciation | $ (883) | $ (1,264) | $ (1,897) | $ (4,044) |
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COMVERSE, INC. AND SUBSIDIARIES | ||||
BUSINESS SEGMENT INFORMATION | ||||
(UNAUDITED) | ||||
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| Digital |
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| BSS | Services | All Other | Consolidated |
| (In thousands) | |||
Three Months Ended April 30, 2013 |
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Total revenue | $ 76,264 | $ 79,554 | $ — | $ 155,818 |
Total costs and expenses | $ 60,563 | $ 56,712 | $ 30,700 | $ 147,975 |
Income (loss) from operations | $ 15,701 | $ 22,842 | $ (30,700) | $ 7,843 |
Computation of segment performance: |
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Segment revenue | $ 76,264 | $ 79,554 | $ — |
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Total costs and expenses | $ 60,563 | $ 56,712 | $ 30,700 |
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Segment expense adjustments: |
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Stock-based compensation expense | — | — | 3,094 |
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Amortization of intangibles assets | 649 | — | — |
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Compliance-related professional fees | — | — | 436 |
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Compliance-related compensation and other expenses | 122 | 56 | (126) |
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Impairment of property and equipment | 26 | 1 | 11 |
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Certain litigation settlements and related cost | — | — | (24) |
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Italian VAT refund recovery recorded within operating expense | — | — | (10,861) |
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Restructuring expenses | — | — | 4,221 |
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Gain on sale of fixed assets | — | — | (11) |
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Other | — | — | 290 |
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Segment expense adjustments | 797 | 57 | (2,970) |
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Segment expenses | 59,766 | 56,655 | 33,670 |
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Segment performance | $ 16,498 | $ 22,899 | $ (33,670) |
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Interest expense | $ — | $ — | $ (188) | $ (188) |
Depreciation | $ (837) | $ (1,220) | $ (1,863) | $ (3,920) |
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