Comverse Announces Fiscal 2014 Third Quarter Results; Conference Call to be Held Today at 8:00 AM
WAKEFIELD, Mass., Dec. 10, 2014 – Comverse, Inc. (“Comverse”) (Nasdaq:CNSI) today announced its results for the third fiscal quarter ended October 31, 2014.
Consolidated Highlights: Below is selected consolidated financial information for the three and nine months ended October 31, 2014 and 2013, prepared in accordance with generally accepted accounting principles (“GAAP”), except as noted.
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Comverse, Inc.: | Three Months Ended | Nine Months Ended | ||
(In thousands) | 2014 | 2013 | 2014 | 2013 |
Total revenue | $ 123,119 | $ 160,416 | $ 357,571 | $ 485,987 |
Costs and expenses |
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Cost of revenue | 76,624 | 95,888 | 232,948 | 290,336 |
Research and development, net | 15,007 | 17,536 | 45,285 | 50,476 |
Selling, general and administrative | 25,534 | 31,283 | 89,228 | 103,342 |
Other operating expenses | 8,046 | 1,005 | 12,701 | 7,859 |
Total costs and expenses | 125,211 | 145,712 | 380,162 | 452,013 |
(Loss) income from operations | (2,092) | 14,704 | (22,591) | 33,974 |
Expense adjustments | 12,114 | 5,634 | 27,877 | 10,220 |
Comverse performance (1) | 10,022 | 20,338 | 5,286 | 44,194 |
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Income (loss) before income tax (expense) benefit | 5,138 | 11,816 | (16,895) | 26,361 |
Income tax (expense) benefit | (4,188) | 11,320 | (15,152) | (23,452) |
Net income (loss) | 950 | 23,136 | (32,047) | 2,909 |
Basic earnings (loss) per share | $ 0.04 | $ 1.04 | $ (1.44) | $ 0.13 |
Diluted earnings (loss) per share | $ 0.04 | $ 1.03 | $ (1.44) | $ 0.13 |
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Interest expense | (122) | (211) | (476) | (565) |
Depreciation and amortization | $ (5,329) | $ (4,753) | $ (14,890) | $ (14,070) |
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Operating margin | (1.7)% | 9.2% | (6.3)% | 7.0% |
Comverse performance margin | 8.1% | 12.7% | 1.5% | 9.1% |
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Net cash used in operating activities (2) | $ (16,050) | $ (15,028) | $ (65,434) | $ (5,387) |
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(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. | ||||
“I am pleased to report that in the quarter just completed, we made good progress, both in the marketplace, within the communication service provider and enterprise markets, as well as operationally, in implementing our recent company realignment. I believe our revised strategy is having an impact and out third quarter results reflects that improvement, compared to the previous quarter,” said Philippe Tartavull, President and CEO of Comverse, Inc.
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Business Segment Highlights: | ||||
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| Three Months Ended October 31, | Nine Months Ended October 31, | ||
| 2014 | 2013 | 2014 | 2013 |
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SEGMENT RESULTS |
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BSS |
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Segment revenue | $ 68,235 | $ 70,892 | $ 185,262 | $ 221,314 |
Gross margin | 45.1% | 40.3% | 43.0% | 38.6% |
Income from operations | 17,925 | 12,513 | 39,280 | 35,301 |
Operating margin | 26.3% | 17.7% | 21.2% | 16.0% |
Segment performance | 18,625 | 13,204 | 41,377 | 37,522 |
Segment performance margin | 27.3% | 18.6% | 22.3% | 17.0% |
Digital Services |
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Segment revenue | $ 54,884 | $ 89,524 | $ 172,309 | $ 264,673 |
Gross margin | 38.9% | 48.0% | 37.6% | 46.4% |
Income from operations | 12,786 | 35,102 | 42,285 | 98,914 |
Operating margin | 23.3% | 39.2% | 24.5% | 37.4% |
Segment performance | 12,885 | 35,063 | 42,388 | 99,093 |
Segment performance margin | 23.5% | 39.2% | 24.6% | 37.4% |
All Other |
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Loss from operations | $ (32,803) | $ (32,911) | $ (104,156) | $ (100,241) |
Segment performance | (21,488) | (27,929) | (78,479) | (92,421) |
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Selected Balance Sheet Highlights: Below is selected balance sheet data: | ||
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| As of | |
(In millions) | October 31, 2014 | July 31, 2014 |
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Cash and cash equivalents | $ 175.5 | $ 181.6 |
Restricted cash (including long-term restricted cash) and bank time deposits | 44.0 | 72.7 |
Total | $ 219.5 | $ 254.3 |
On August 6, 2014, the escrow under the merger of Verint Systems Inc. and Comverse Technology, Inc. was released and the company received the escrow amount of approximately $25.0 million.
Conference Call Details
Comverse will be conducting a conference call today, December 10, 2014 at 8:00 a.m. ET. To listen to the conference call live, please dial (678) 825-8369. Please dial-in at least ten minutes before the scheduled start time. A live webcast can be accessed at www.comverse.com by following links to the events and presentations page under the Investors section. Following the call, a replay of the webcast will be archived in the same location.
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 guidance relating to segment reporting, is not necessarily comparable to other similarly titled captions of other companies.
Segment performance is computed by management as (loss) income 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) write-off 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.
At the core of the evolution of how we communicate, exchange information and monetize the digital world, Comverse enables the creation and monetization of innovative digital services for telecom and enterprise service providers through its proven and innovative product portfolio that includes managed BSS and Policy (PCRF), Enterprise Billing 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.
Forward-Looking Statements
This press release includes “forward-looking statements.” Forward-looking statements include financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “expects,” “plans,” “anticipates,” “estimates,” “believes,” “potential,” “projects,” “forecasts,” “intends,” or the negative thereof or other comparable terminology. By their very nature, forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results, performance and the timing of events to differ materially from those anticipated, expressed or implied by the forward-looking statements in this press release. Such risks or uncertainties may give rise to future claims and increase exposure to contingent liabilities. These risks and uncertainties relate to (among other factors) the market price of our stock, operating expenses and cash flows, variability of our tax provision, and the additional risks described in the sections entitled “Forward-Looking Statements” and Item 1A, “Risk Factors” and elsewhere in the company’s Annual Report on Form 10-K filed with the SEC on April 16, 2014, or in subsequently filed periodic, current or other reports. We undertake no commitment to update or revise any forward-looking statements except as required by law.
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.
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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 October 31, | Nine Months Ended October 31, | ||
| 2014 | 2013 | 2014 | 2013 |
Revenue: |
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Product revenue | $ 25,482 | $ 49,413 | $ 73,768 | $ 158,808 |
Service revenue | 97,637 | 111,003 | 283,803 | 327,179 |
Total revenue | 123,119 | 160,416 | 357,571 | 485,987 |
Costs and expenses: |
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Product costs | 13,729 | 23,551 | 39,537 | 79,936 |
Service costs | 62,895 | 72,337 | 193,411 | 210,400 |
Research and development, net | 15,007 | 17,536 | 45,285 | 50,476 |
Selling, general and administrative | 25,534 | 31,283 | 89,228 | 103,342 |
Other operating expenses: |
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Restructuring expenses and write-off of property and equipment | 8,046 | 1,005 | 12,701 | 7,859 |
Total other operating expenses | 8,046 | 1,005 | 12,701 | 7,859 |
Total costs and expenses | 125,211 | 145,712 | 380,162 | 452,013 |
(Loss) income from operations | (2,092) | 14,704 | (22,591) | 33,974 |
Interest income | 126 | 121 | 341 | 436 |
Interest expense | (122) | (211) | (476) | (565) |
Foreign currency transaction gain (loss), net | 7,257 | (2,733) | 6,327 | (7,761) |
Other (expense) income, net | (31) | (65) | (496) | 277 |
Income (loss) before income tax (expense) benefit | 5,138 | 11,816 | (16,895) | 26,361 |
Income tax (expense) benefit | (4,188) | 11,320 | (15,152) | (23,452) |
Net income (loss) | $ 950 | $ 23,136 | $ (32,047) | $ 2,909 |
Weighted average common shares outstanding: |
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Basic | 22,216,878 | 22,218,600 | 22,304,366 | 22,138,389 |
Diluted | 22,294,590 | 22,412,267 | 22,304,366 | 22,312,009 |
Earnings (loss) per share: |
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Basic earnings (loss) per share | $ 0.04 | $ 1.04 | $ (1.44) | $ 0.13 |
Diluted earnings (loss) per share | $ 0.04 | $ 1.03 | $ (1.44) | $ 0.13 |
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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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| October 31, | January 31, |
| 2014 | 2014 |
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ 175,462 | $ 254,580 |
Restricted cash and bank deposits | 35,546 | 34,343 |
Accounts receivable, net of allowance of $4,585 and $6,945, respectively | 101,207 | 89,361 |
Inventories | 14,379 | 16,166 |
Deferred cost of revenue | 9,367 | 14,500 |
Deferred income taxes | 2,080 | 2,329 |
Prepaid expenses | 19,723 | 17,000 |
Other current assets | 12,378 | 1,680 |
Total current assets | 370,142 | 429,959 |
Property and equipment, net | 45,998 | 41,541 |
Goodwill | 151,846 | 150,346 |
Intangible assets, net | 5,035 | 5,153 |
Deferred cost of revenue | 33,805 | 45,717 |
Deferred income taxes | 1,119 | 1,720 |
Long-term restricted cash | 8,493 | 33,815 |
Other assets | 33,176 | 40,586 |
Total assets | $ 649,614 | $ 748,837 |
LIABILITIES AND (DEFICIT) EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses | $ 143,938 | $ 168,406 |
Deferred revenue | 220,887 | 239,902 |
Deferred income taxes | 845 | 514 |
Income taxes payable | 158 | 2,102 |
Total current liabilities | 365,828 | 410,924 |
Deferred revenue | 94,197 | 113,426 |
Deferred income taxes | 46,487 | 43,735 |
Other long-term liabilities | 145,930 | 147,942 |
Total liabilities | 652,442 | 716,027 |
Commitments and contingencies |
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Deficit (equity): |
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Common stock, $0.01 par value – authorized, 100,000,000 shares; issued 22,575,789 and 22,286,123 shares, respectively; outstanding, 21,910,740 and 22,251,226 shares, respectively | 226 | 223 |
Treasury stock, at cost, 665,049 and 34,897 shares, respectively | (15,291) | (1,024) |
Accumulated deficit | (56,298) | (24,251) |
Additional paid in capital | 43,173 | 34,530 |
Accumulated other comprehensive income | 25,362 | 23,332 |
Total (deficit) equity | (2,828) | 32,810 |
Total liabilities and (deficit) equity | $ 649,614 | $ 748,837 |
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COMVERSE, INC. AND SUBSIDIARIES | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(UNAUDITED) | ||
(In thousands) | ||
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| Nine Months Ended October 31, | |
| 2014 | 2013 |
Cash flows from operating activities: |
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Net (loss) income | $ (32,047) | $ 2,909 |
Non-cash operating items: |
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Depreciation and amortization | 14,890 | 14,070 |
Provision for doubtful accounts | 740 | 824 |
Stock-based compensation expense | 8,606 | 8,011 |
Deferred income taxes | 3,933 | 15,050 |
Inventory write-downs | 2,174 | 3,916 |
Other non-cash items, net | 1,622 | (1,355) |
Changes in assets and liabilities: |
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Accounts receivable | (14,353) | 37,156 |
Inventories | (2,484) | (19) |
Deferred cost of revenue | 17,055 | 30,322 |
Prepaid expense and other current assets | (10,179) | (433) |
Accounts payable and accrued expense | (22,447) | (16,870) |
Income taxes | (2,367) | (1,379) |
Deferred revenue | (33,835) | (89,955) |
Tax contingencies | 4,290 | (4,624) |
Other assets and liabilities | (1,032) | (3,010) |
Net cash used in operating activities | (65,434) | (5,387) |
Cash flows from investing activities: |
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Proceeds from sales and maturities of investments | — | 100 |
Purchases of property and equipment | (17,698) | (9,832) |
Acquisition of Solaiemes, net of cash acquired | (2,673) | — |
Net change in restricted cash and bank deposits | 24,063 | (27,324) |
Proceeds from asset sales | 86 | 78 |
Other, net | — | 743 |
Net cash provided by (used in) investing activities | 3,778 | (36,235) |
Cash flows from financing activities: |
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CTI capital contribution | — | 25,000 |
Payment for repurchase of common stock in connection with tax liabilities upon settlement of stock awards | (984) | (820) |
Payment for repurchase of common stock under repurchase program | (13,126) | — |
Proceeds from exercises of stock options | 40 | 846 |
Proceeds from loan | 87 | — |
Net cash (used in) provided by financing activities | (13,983) | 25,026 |
Effects of exchange rates on cash and cash equivalents | (3,479) | (2,139) |
Net decrease in cash and cash equivalents | (79,118) | (18,735) |
Cash and cash equivalents, beginning of period | 254,580 | 262,921 |
Cash and cash equivalents, end of period | $ 175,462 | $ 244,186 |
Non-cash investing transactions: |
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Accrued but unpaid purchases of property and equipment | $ 3,348 | $ 1,278 |
Inventory transfers to property and equipment | $ 2,082 | $ 3,201 |
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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 October 31, | Nine Months Ended October 31, | ||
| 2014 | 2013 | 2014 | 2013 |
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(Loss) income from operations | $ (2,092) | $ 14,704 | $ (22,591) | $ 33,974 |
Expense Adjustments: |
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Stock-based compensation expense | 2,683 | 2,668 | 8,606 | 8,011 |
Amortization of intangible assets | 796 | 692 | 2,191 | 2,070 |
Compliance-related professional fees | 55 | 744 | 759 | 1,550 |
Compliance-related compensation and other expenses | — | (44) | (70) | 163 |
Strategic related costs | 186 | — | 2,576 | — |
Write-off of property and equipment | 1,470 | 208 | 1,648 | 251 |
Certain litigation settlements and related costs | 41 | 8 | 46 | (15) |
Italian VAT refund recovery recorded within operating expenses | — | — | — | (10,861) |
Restructuring expenses | 6,582 | 1,005 | 11,237 | 7,859 |
Gain on sale of fixed assets | (4) | (14) | (21) | (32) |
Other | 305 | 367 | 905 | 1,224 |
Total expense adjustments | 12,114 | 5,634 | 27,877 | 10,220 |
Comverse performance | $ 10,022 | $ 20,338 | $ 5,286 | $ 44,194 |
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COMVERSE, INC. AND SUBSIDIARIES | ||||
BUSINESS SEGMENT INFORMATION | ||||
(UNAUDITED) | ||||
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| Digital |
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| (In thousands) | |||
Three Months Ended October 31, 2014 |
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Total revenue | $ 68,235 | $ 54,884 | $ — | $ 123,119 |
Total costs and expenses | $ 50,310 | $ 42,098 | $ 32,803 | $ 125,211 |
Income (loss) from operations | $ 17,925 | $ 12,786 | $ (32,803) | $ (2,092) |
Computation of segment performance: |
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Segment revenue | $ 68,235 | $ 54,884 | $ — |
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Total costs and expenses | $ 50,310 | $ 42,098 | $ 32,803 |
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Segment expense adjustments: |
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Stock-based compensation expense | — | — | 2,683 |
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Amortization of intangibles assets | 698 | 98 | — |
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Compliance-related professional fees | — | — | 55 |
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Strategic-related costs | — | — | 186 |
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Write-off of property and equipment | 2 | 1 | 1,467 |
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Certain litigation settlements and related cost | — | — | 41 |
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Restructuring expenses | — | — | 6,582 |
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Gain on sale of fixed assets | — | — | (4) |
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Other | — | — | 305 |
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Segment expense adjustments | 700 | 99 | 11,315 |
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Segment expenses | 49,610 | 41,999 | 21,488 |
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Segment performance | $ 18,625.00 | $ 12,885.00 | $ (21,488) |
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Interest expense | $ — | $ — | $ (122) | $ (122) |
Depreciation | $ (887 | $ (1,304) | $ (2,342) | $ (4,533) |
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COMVERSE, INC. AND SUBSIDIARIES | ||||
BUSINESS SEGMENT INFORMATION | ||||
(UNAUDITED) | ||||
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| Digital | |
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Three Months Ended October 31, 2013 |
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Total revenue | $ 70,892 | $ 89,524 | $ — | $ 160,416 |
Total costs and expenses | $ 58,379 | $ 54,422 | $ 32,911 | $ 145,712 |
Income (loss) from operations | $ 12,513 | $ 35,102 | $ (32,911) | $ 14,704 |
Computation of segment performance: |
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Segment revenue | $ 70,892 | $ 89,524 | $ — |
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Total costs and expenses | $ 58,379 | $ 54,422 | $ 32,911 |
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Segment expense adjustments: |
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Stock-based compensation expense | — | — | 2,668 |
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Amortization of intangibles assets | 692 | — | — |
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Compliance-related professional fees | — | — | 744 |
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Compliance-related compensation and other expenses | — | (39) | (5) |
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Write-off of property and equipment | — | — | 208 |
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Certain litigation settlements and related cost | — | — | 8 |
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Restructuring expenses | — | — | 1,005 |
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Gain on sale of fixed assets | (1) | — | (13) |
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Other | — | — | 367 |
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Segment expense adjustments | 691 | (39) | 4,982 |
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Segment expenses | 57,688 | 54,461 | 27,929 |
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Segment performance | $ 13,204 | $ 35,063 | $ (27,929) |
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Interest expense | $ — | $ — | $ (211) | $ (211) |
Depreciation | $ (936) | $ (1,268) | $ (1,857) | $ (4,061) |
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COMVERSE, INC. AND SUBSIDIARIES | ||||
BUSINESS SEGMENT INFORMATION | ||||
(UNAUDITED) | ||||
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| Digital |
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Nine Months Ended October 31, 2014 |
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Total revenue | $ 185,262 | $ 172,309 | $ — | $ 357,571 |
Total costs and expenses | $ 145,982 | $ 130,024 | $ 104,156 | $ 380,162 |
Income (loss) from operations | $ 39,280 | $ 42,285 | $ (104,156) | $ (22,591) |
Computation of segment performance: |
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Segment revenue | $ 185,262 | $ 172,309 | $ — |
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Total costs and expenses | $ 145,982 | $ 130,024 | $ 104,156 |
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Segment expense adjustments: |
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Stock-based compensation expense | — | — | 8,606 |
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Amortization of intangibles assets | 2,093 | 98 | — |
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Compliance-related professional fees | — | — | 759 |
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Compliance-related compensation and other expenses | — | 1 | (71) |
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Strategic-related costs | — | — | 2,576 |
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Write-off of property and equipment | 2 | 3 | 1,643 |
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Certain litigation settlements and related cost | — | — | 46 |
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Restructuring expenses | — | — | 11,237 |
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Gain on sale of fixed assets | 2 | 1 | (24) |
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Other | — | — | 905 |
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Segment expense adjustments | 2,097 | 103 | 25,677 |
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Segment expenses | 143,885 | 129,921 | 78,479 |
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Segment performance | $ 41,377 | $ 42,388 | $ (78,479) |
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Interest expense | $ — | $ — | $ (476) | $ (476) |
Depreciation | $ (2,632) | $ (3,828) | $ (6,239) | $ (12,699) |
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COMVERSE, INC. AND SUBSIDIARIES | ||||
BUSINESS SEGMENT INFORMATION | ||||
(UNAUDITED) | ||||
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| Digital | |
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Nine Months Ended October 31, 2013 |
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Total revenue | $ 221,314 | $ 264,673 | $ — | $ 485,987 |
Total costs and expenses | $ 186,013 | $ 165,759 | $ 100,241 | $ 452,013 |
Income (loss) from operations | $ 35,301 | $ 98,914 | $ (100,241) | $ 33,974 |
Computation of segment performance: |
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Segment revenue | $ 221,314 | $ 264,673 | $ — |
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Total costs and expenses | $ 186,013 | $ 165,759 | $ 100,241 |
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Segment expense adjustments: |
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Stock-based compensation expense | — | — | 8,011 |
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Amortization of intangibles assets | 2,070 | — | — |
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Compliance-related professional fees | — | — | 1,550 |
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Compliance-related compensation and other expenses | 122 | 179 | (138) |
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Write-off of property and equipment | 29 | 1 | 221 |
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Certain litigation settlements and related cost | — | — | (15) |
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Italian VAT refund recovery recorded within operating expense | — | — | (10,861) |
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Restructuring expenses | — | — | 7,859 |
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Gain on sale of fixed assets | — | (1) | (31) |
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Other | — | — | 1,224 |
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Segment expense adjustments | 2,221 | 179 | 7,820 |
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Segment expenses | 183,792 | 165,580 | 92,421 |
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Segment performance | $ 37,522 | $ 99,093 | $ (92,421) |
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Interest expense | $ — | $ — | $ (565) | $ (565) |
Depreciation | $ (2,822) | $ (3,777) | $ (5,401) | $ (12,000) |
