TIDMBILL
RNS Number : 1269J
Billing Services Group Limited
27 March 2018
For Immediate Release
Billing Services Group Limited
("BSG" or the "Company")
Audited results for the year ended December 31, 2017
POSITIVE CASH FLOW FROM OPERATIONS AND RETURN OF $5.0 MILLION TO
SHAREHOLDERS
(March 26, 2018) San Antonio, Texas, USA and Aldermaston, United
Kingdom - BSG, a leading provider of telecommunications clearing
and financial settlement products, Wi-Fi data solutions and
verification services, today announces its audited results for the
year ended December 31, 2017.
Financial Highlights
(All amounts in US$)
Year Ended December 31
2017 2016
-------------------- ---------------------
Revenues $ 21.1 million $ 30.2 million
EBITDA (1) $ 0.9 million $ 5.7 million
Net (loss)
income $ (6.7) million $ 10.9 million
Net (loss)
income per
basic and diluted per
share $ (0.02) share $ 0.04 per share
(1) EBITDA is computed as earnings before interest, income
taxes, depreciation, amortization and other non-cash and
nonrecurring income or expense items. EBITDA is not a recognized
measure under generally accepted accounting principles (GAAP).
-- Completed a $5.0 million cash tender offer under which the
Company purchased 117,647,059 shares at a price per share of
$0.0425, reducing outstanding shares from 282,415,748 to
164,768,689
-- Repaid $2.1 million to the Federal Trade Commission pursuant
to the 2016 settlement ($1.0 million outstanding balance owed as of
the date of this announcement)
-- Generated $0.9 million of EBITDA (2016: $5.7 million)
-- Provided $1.1 million of cash from operating activities (2016: used $0.5 million)
-- Improved gross margin by 3.6 percentage points (56.6% in 2017 vs. 53.0% in 2016)
-- Recognized $15.3 million of non-cash impairment charges
against goodwill (no impairment in 2016)
-- Ended the year with $11.5 million of cash (2016: $15.1 million)
BSG Wireless and Third Party Verification ("TPV") Operational
Highlights
-- Completed the delivery of the new Wi-Fi Location Data Service
(WLDS) product to AT&T, Boingo and Telus
-- Signed a new contract with XLN (a UK-based business telecom
provider) to provide Wi-Fi hub services
-- Extended our hotspot finder and connection product suite with
delivery to VAST Networks (a Wi-Fi network infrastructure provider
based in South Africa)
-- Enhanced the hub service product suite to include Alerting and delivered to AT&T
-- Deployed TPV services to 14 states on behalf of Direct Energy
Current Trading and Strategy
-- In 2016, the Company initiated a strategic review to assist
the Board in determining the future composition of the group,
including capital structure and business lines. The decision to
initiate and complete a $5.0 million cash tender offer (completion
of which was announced on December 15, 2017) was one of the initial
conclusions of the review. In addition, the Company is in
discussions to sell its Wi-Fi data solutions business. Following a
successful sale of the Wi-Fi data solutions business, if any, the
Board will consider further cash distributions and other actions
with respect to its remaining business lines.
-- During the second half of 2017, the Company recognized $15.3
million of impairment charges relating to its wireline billing and
clearing business and its third-party verification business. The
impairment charges were necessitated due to declining operating
income in the affected business lines, attributable in large part
to the discontinuation of third-party billing by AT&T and
Verizon.
-- The Company's direct billing initiative has developed solid
traction, and we expect this to continue over the course of 2018.
However, as evidenced by our 2017 financial performance, this
initiative did not offset the effects of AT&T's discontinuation
of third-party billing during 2017, and it will not offset the
effects of Verizon's discontinuation during 2018.
-- The Company expects that revenues and earnings in 2018 will
compare unfavorably with 2017 due largely to Verizon's
discontinuation of third-party billing in December 2017, as
described in the Company's announcement dated May 24, 2017.
-- The Company will not be providing any additional financial performance guidance at this time.
Commenting on the results, Denham Eke and Jason Wolff,
Non-Executive Co-Chairmen, said:
"The 2017 results demonstrate the Company's agility under
difficult circumstance and our commitment to maximize shareholder
value. Most significantly, the Company succeeded in returning $5.0
million of cash to shareholders through the tender offer, and
delivering $1.1 million of cash flow from operating
activities."
INQUIRIES:
Billing Services Group Limited +1 210 949 7000
Norman M. Phipps
finnCap Limited +44 (0) 20 7220 0500
Stuart Andrews/Scott Mathieson
About BSG:
BSG has locations in San Antonio, Texas, USA and Aldermaston,
United Kingdom. The Company is traded on the London Stock Exchange
(AIM: BILL). For more information on BSG, visit
(www.bsgclearing.com).
Chief Executive's Statement
2017 unfolded within a particularly challenging environment.
Revenues and earnings declined, and we wrote down $15.3 million of
goodwill. On the positive side, the Company generated $0.9 million
of EBITDA, provided $1.1 million of cash from operating activities
and returned $5.0 million to shareholders by way of a tender offer,
the completion of which was announced on December 15, 2017. The
Company's performance in 2017 demonstrated once again its agility
in adapting to changing circumstances.
Our largest challenge in 2017 arose from AT&T's decision to
discontinue third-party billing in December 2016. AT&T was our
largest third-party biller. Their withdrawal from the market had a
significant effect on our 2017 revenues, which declined by 30%
(from $30.2 million to $21.1 million). In May 2017, Verizon
informed us of its similar withdrawal from third-party billing,
which took effect at the end of 2017. We will feel the financial
effects of Verizon's action in our 2018 results.
The cumulative fallout from the actions by AT&T and Verizon
was largely responsible for $15.3 million of non-cash goodwill
impairment charges recorded during 2017. A substantial portion of
the underlying goodwill had been originally recorded in 2003, when
the predecessor to BSG purchased the wireline billing and clearing
business. The non-cash goodwill impairment charges in 2017 were
largely responsible for the $6.7 million ($0.02 per share) net loss
incurred during the year. In the absence of any goodwill impairment
charges, the Company would have earned $6.3 million of pre-tax
income.
Strategic review
In 2016, the Company initiated a strategic review to assist the
Board in determining the future composition of the group, including
capital structure and business lines.
The most visible action taken to date pursuant to the strategic
review was a $5.0 million cash tender offer initiated and completed
in December 2017. The amount of the tender offer reflected due
consideration of foreseeable cash requirements in our operating
business units and the maintenance of reserves for unforeseeable
events. At the end of 2017, after completion of the tender offer,
the Company held $11.5 million of cash.
Less visible, but equally significant, was the decision to
engage in discussions to sell BSG Wireless, our Wi-Fi data
solutions business. In the event of a successful sale of the Wi-Fi
data solutions business, the Board will consider further cash
distributions to shareholders and other actions with respect to its
remaining business lines.
We will not be providing financial performance guidance at this
time.
Business lines
BSG's core business, a billing and clearing service for wireline
phone transactions, is far smaller than it was a decade ago as a
result of an unfavorable secular trend in wireline phone usage and
the more recent withdrawals of AT&T and Verizon from
third-party billing. Scale has been the historically essential
ingredient to financial success in the business, because major
components of operating costs are largely fixed. The erosion of
transaction volume over time has extensively affected the
profitability of the business.
We have taken several actions aimed to ensure the viability of
the business. Most importantly, we introduced a direct billing
option at the end of 2016 under which BSG submits invoices and
collect funds directly from consumers, rather than bill through
local exchange carriers (LECs). The direct billing service relies
on the Company's third-party billing platform to perform all
critical data management functions.
The direct billing service gained traction in 2017 for our
customers who previously relied on AT&T for third-party
billing. Many of our customers now affected by Verizon's action
have also converted to our direct billing service. The effect of
such conversions is not readily discernible in our income
statement, however, because revenue from a direct billing
transaction is much lower than for a third-party billing
transaction.
Our TPV business, branded as VoiceLog, in which we independently
confirm transactions mostly for utility services, cable companies,
health care and long distance providers, is enjoying a higher level
of transaction volume due to several new customers added during the
second half of 2017.
Capital management
Capital structure and capital allocation continue to be of
paramount importance to our management and Board of Directors,
whose current members directly represent parties owning 56% of the
Company's outstanding shares. The most significant capital
allocation action taken in 2017, as discussed above, was the
Company's repurchase of $5.0 million of shares by way of a tender
offer. The corresponding reduction in cash did not alter the
conservative character of the Company's balance sheet and
capitalization. At December 31, 2017, the Company had $11.5 million
of cash, $5.9 million of working capital, minimal long-term debt
and $10.1 million of tangible net worth.
Special thanks to retired directors
Patrick D. Heneghan, Leighton W. Smith and Greg M. Carter all
retired from the Board at the end of 2017. Pat and Leighton served
as directors from the formation of BSG in 2005. Greg served as our
CEO from 2008 to 2012. All three typically looked at issues from
different perspectives reflecting their varied backgrounds, and all
three could be counted on for insightful and constructive counsel.
We thank them for their service.
Employees
Employees have stepped up to every challenge during the
transformation and recalibration of our business. Their enthusiasm
and willingness to stretch have never wavered. I am proud of each
one of them.
Sincerely,
Norman M. Phipps
Chief Executive Officer
FINANCIAL REVIEW
Financial Review of the Year Ended December 31, 2017
The Company's audited results for the year ended December 31,
2017 are compared against the year ended December 31, 2016 in the
accompanying consolidated financial statements. BSG's consolidated
financial statements are prepared in conformity with United States
GAAP.
Certain Terms
Revenues. Revenues are derived primarily from fees charged to
wireline and wireless service providers for data clearing,
financial settlement, information management, payment and financial
risk management, third-party verification and customer service
functions. During 2016, the Company introduced a direct billing
service under which end-user consumers are invoiced directly by the
Company, rather than through LECs as third-party billers. Revenue
recognized under third-party billing includes the Company's service
fees plus amounts necessary to compensate the LECs for their
third-party billing services. Revenue for direct billing does not
include any components other than the Company's service fees.
Cost of Services and Gross Profit. Cost of services arises
primarily in the Company's wireline billing and clearing business.
Cost of services includes billing and collection fees charged by
LECs and other service providers for payment processing. Such fees
are assessed for each record submitted and for each bill rendered
to end-user consumers. BSG charges its customers a negotiated fee
for billing and collection services. Accordingly, gross profit is
generally dependent upon transaction volume, processing fees
charged per transaction and any differential between the fees
charged to customers by BSG and the related fees charged to BSG by
LECs and other service providers.
Operating Expenses. Operating expenses include all selling,
marketing, customer service, facilities and administrative costs
(including payroll and related expenses) incurred in support of
operations, substantially all of which are settled through the
payment of cash.
Depreciation and Amortization. Depreciation expense applies to
software, furniture and fixtures, telecommunications and computer
equipment. Amortization expense relates to definite-lived
intangible assets that are amortized in accordance with Accounting
Standards Codification (ASC) 350, Intangibles - Goodwill and Other.
These assets consist of contracts with customers and LECs. Assets
are depreciated or amortized, as applicable, over their respective
useful lives.
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA). Earnings before interest, income taxes, depreciation and
amortization, a non-GAAP metric, is a measurement of profitability
often used by investors and lenders. The computation of EBITDA also
excludes other non-cash and nonrecurring items as additions or
deductions to earnings.
Third-Party Payables. Third-party payables include amounts owed
to customers in the ordinary course of clearinghouse activities and
additional amounts maintained as reserves for retrospective charges
from LECs and other parties. In its clearinghouse business, the
Company aggregates call records received from its customers. It
then submits the call records either to (i) LECs for billing to
end-user consumers; or (ii) end-user consumers. The Company
collects funds from LECs and directly-billed end-user consumers
each day.
Under normal circumstances, funds collected from LECs are
distributed to the Company's customers approximately ten days after
receipt, under weekly settlement protocols. The Company withholds a
portion of the funds received from LECs to pay (i) the Company's
processing fees, (ii) billing and collection fees of LECs, (iii)
sales and other taxes paid by the Company and (iv) an amount deemed
necessary to serve as a reserve against retrospective charges from
LECs.
Funds collected from directly-billed end-user consumers are
credited to the Company's customers when received. The Company
withholds a portion of the funds received from end-user consumers
to pay (i) the Company's processing fees, (ii) sales and other
taxes paid by the Company and (iii) an amount deemed necessary to
serve as a reserve against retrospective charges from payment
processors or other parties.
When LECs, payment processors and other parties make payments to
the Company, they withhold funds to cover a variety of expenses and
potential retrospective charges. As noted above, the Company
similarly withholds funds from its customers to cover expenses and
retrospective charges. The third-party payables balance is computed
as the excess of (i) funds owed to the Company's customers,
inclusive of reserves for retrospective charges, over the sum of
(ii) amounts owed from the Company's customers and (iii) reserves
withheld for retrospective charges by LECs, payment processors and
other parties.
Comparison of Results for the Year Ended December 31, 2017 to
the Year Ended December 31, 2016
Total Revenues. Total revenues of $21.1 million in 2017 were
$9.1 million, or 30%, lower than the $30.2 million of revenues
recorded during 2016. The $9.1 million decrease reflects lower
transaction volumes across all clearing, settlement and customer
service activities provided for wireline service providers,
partially offset by higher managed service fees from BSG Wireless'
offerings.
Cost of Services and Gross Profit. Cost of services in 2017 was
$9.1 million, compared to $14.2 million in 2016. The $5.1 million,
or 36%, decrease in cost of services largely reflects lower fees
for billing and collection services related to the lower level of
transaction volumes. The Company generated $11.9 million of gross
profit in 2017, compared to $16.0 million in 2016. The gross margin
of 56.6% in 2017 is 3.6 percentage points higher than the 53.0%
margin achieved in 2016. The improved gross margin in 2017 resulted
from a larger percentage of revenue from the wireless business,
which operates at a higher gross margin level than the wireline
business.
Operating Expenses. Operating expenses were $11.0 million in
2017, compared to $10.3 million in 2016. The $0.7 million, or 7%,
increase largely reflects a $0.8 million increase in fees for legal
and professional services.
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). The Company generated $0.9 million of EBITDA during
2017, compared to $5.7 million during 2016. A reconciliation of net
income and EBITDA in each period follows:
Year Ended December
31
$ millions 2017 2016
------------------------------- ---------------- ---------------
Net (loss) income $ (6.7) $ 10.9
Depreciation expense 1.3 1.4
Amortization of intangibles 0.6 0.6
Impairment charges 15.3 -
Income tax (benefit)
expense (2.4) 2.4
Other income, net (7.5) (9.6)
All other, net 0.3 -
--- ----------- -----------
EBITDA $ 0.9 $ 5.7
=========== ===========
Depreciation and Amortization Expense. Depreciation and
amortization expenses totaled $1.9 million in 2017, compared to
$2.0 million in 2016. The $0.1 million decline reflects cessation
of depreciation charges on components of capitalized software
development costs for which accumulated depreciation reached the
assets' respective gross carrying values.
Impairment Charges. The Company recorded $15.3 million of
non-cash impairment charges against goodwill during 2017. Goodwill,
which resulted from acquisitions made by the Company over ten years
ago, was deemed impaired as a result of reduced transaction volumes
and operating income. The non-cash impairment charges were not
included as deductions to earnings for purposes of calculating
EBITDA.
Other Income, Net. The Company realized $7.5 million of other
income, net during 2017, compared to $9.6 million in 2016. Other
income, net in 2017 was largely attributable to adjustments to
indemnification reserves and customer accounts in connection with
their indemnification obligations to the Company under class action
litigation. Other income, net in 2016 was largely attributable to
accounting treatment adjustments to indemnification amounts under
class action litigation and a net gain arising from the translation
of assets and liabilities denominated in British Sterling.
Other income arises from miscellaneous items typically of a
nonrecurring nature. Accordingly, other income items were not
included as earnings for purposes of calculating EBITDA.
Change in Cash. BSG's cash balance at December 31, 2017 was
$11.5 million, compared to $15.1 million at December 31, 2016. The
$3.6 million decrease in cash during 2017 is largely attributable
to a $5.0 million tender offer implemented in December 2017 under
which the Company repurchased 117,647,059 million shares of stock
and to $0.9 million in capital expenditures, partially offset by
$1.1 million of cash provided by operating activities, $0.8 million
released from restricted cash and $0.1 million of exchange rate
differences.
Change in Restricted Cash. In the ordinary course of business,
LECs withhold funds from their payments to the Company in order to
create a reserve securing potential future obligations of the
Company to the LEC. Through December 31, 2015, pursuant to a 2012
agreement with one LEC, the LEC released a net of $9.3 million of
cash reserves. The cash was transferred into a restricted Company
bank account to be used for funding the Company's indemnification
obligation under pending class action litigation against the LEC.
During 2016 and 2017, net amounts of $7.7 million and $0.8 million,
respectively, were transferred from the restricted cash account to
satisfy indemnification obligations, reducing restricted cash to
$0.8 million at December 31, 2017.
Change in Third-Party Payables. Third-party payables at December
31, 2017, inclusive of long-term liabilities, were $6.7 million,
compared to $10.3 million at December 31, 2016. The $3.6 million
decrease in third-party payables during 2017 resulted largely from
$3.3 million of net adjustments to customer accounts in connection
with their indemnification obligations to the Company and from $0.3
million of ordinary course settlement activities.
Change in Accrued Liabilities. Accrued liabilities at December
31, 2017 were $2.9 million, compared to $6.3 million at December
31, 2016. The $3.4 million decrease in accrued liabilities resulted
from $2.1 million of settlement payments to the Federal Trade
Commission, $0.6 million of net payments and adjustments to
indemnification liabilities to LECs under pending class action
litigation and $0.7 million of net reductions arising from ordinary
course payments and adjustments.
Capital Expenditures. During 2017, the Company invested $0.9
million in capital expenditures, primarily for capitalized software
development costs and computer equipment. In 2016, capital
expenditures totaled $1.3 million.
Cash Flows for the Year Ended December 31, 2017
Cash flow provided by operating activities. Net cash provided by
operating activities was $1.1 million during 2017. Net cash
provided was principally attributable to a $15.3 million of
non-cash impairment charges to goodwill, $1.9 million of
depreciation and amortization and a $0.7 million decrease in trade
accounts receivable, offset by a $6.7 million net loss, a $3.6
million reduction in third-party payables, a $3.4 million reduction
in accrued liabilities, a $2.3 million reduction in deferred taxes
and a $0.8 million decrease in accounts payable.
Cash flow used in investing activities. Net cash used in
investing activities was $0.6 million, reflecting $0.9 million of
capital expenditures offset by $0.3 million of net receipts on
purchased receivables.
Cash flow used in financing activities. Cash used in financing
activities was $4.1 million, principally attributable to stock
purchases totaling $5.0 million under a tender offer, offset by a
$0.8 million reduction in restricted cash.
******************************
A copy of this statement is available on the Company's website
(www.bsgclearing.com), and copies are available from BSG's
Nominated Advisor at the address below:
Billing Services Group Limited
c/o finnCap Limited
60 New Broad Street
London EC2M 1JJ
United Kingdom
Forward Looking Statements
This report contains certain "forward--looking" statements and
information relating to the plans, objectives, expectations and
intentions of the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information
currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect,"
"intend," "projects," "could," "should," "will" and words or
phrases of similar meaning are intended to identify
forward--looking statements. Forward-looking statements reflect the
Company's current views with respect to future events and financial
performance. Such statements, including certain information set
forth herein under "Financial Review" that is not historical fact
or statement of current condition, reflect management's assessment
of the current risks, uncertainties and assumptions related to
certain factors including, without limitation, the competitive
environment, general economic conditions, customer relations,
relationships with local exchange carriers and other vendors,
availability of credit, borrowing terms, interest rates, foreign
exchange rates, litigation, governmental regulation and
supervision, capital expenditures, product development, product
acceptance, technological change and disruption, changes in
industry practices, one-time events and other factors described
herein. Based upon changing conditions or circumstances arising
from any one or more of these risks or uncertainties, or should any
underlying assumptions prove incorrect, actual results may vary
materially from historical or anticipated results as described
herein.
Readers are cautioned not to place undue reliance on
forward-looking statements. The Company does not intend to update
or revise these forward--looking statements, whether as a result of
new information, future events or otherwise.
Full report available here:
http://www.rns-pdf.londonstockexchange.com/rns/1269J_-2018-3-27.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
March 27, 2018 10:28 ET (14:28 GMT)
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