TIDMBILL
RNS Number : 5357A
Billing Services Group Limited
29 March 2017
For Immediate Release
Billing Services Group Limited
("BSG" or the "Company")
Audited results for the year ended December 31, 2016
FAVORABLE NET INCOME AND CASH FLOW COINCIDE WITH SUCCESSFUL
INTRODUCTION OF DIRECT BILLING SERVICE
(March 29, 2017) 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, 2016.
Financial Highlights
(All amounts in US$)
Year Ended December
31
2016 2015
-------------------- -------------------
Revenues $ 30.2 million $ 36.4 million
EBITDA (1) $ 5.7 million $ 6.4 million
Net income $ 10.9 million $ 8.7 million
Net income
per basic
and diluted per per
share $ 0.04 share $ 0.03 share
(1) EBITDA (a non-GAAP measure) is computed as earnings before
interest, income taxes, depreciation, amortization and other
non-cash and nonrecurring expenses
* Generated $5.7 million of EBITDA (2015: $6.4 million)
* Recorded net income of $0.04 per share (2015: $0.03
per share)
* Improved gross margin by 2.0 percentage points (53.0%
in 2016
vs. 51.0% in 2015)
* Reduced operating expenses by $1.9 million ($10.3
million in 2016 vs. $12.2 million in 2015)
* Repaid $2.1 million (through the date of this report)
of a total $5.2 million pursuant to our settlement
with the Federal Trade Commission (FTC)
BSG Wireless and TPV Operational Highlights
* Completed development of the new Wi-Fi Location Data
Service (WLDS) and engaged with lead customers,
including Comcast, Boingo Wireless, AT&T and TELUS
* Increased network partner interconnections to over
80, and Roaming Hub traffic grew 48% compared to 2015
* Selected by Panasonic Avionics to provide in-flight
Wi-Fi connectivity services
* Completed development of a Software Development Kit
(SDK) for our hotspot finder and connection suite and
engaged with Panasonic Aviation to provide "white
labeled" Wi-Fi connection managers
* Continued to extend penetration of the North American
cable operator market by deploying upgraded releases
of our hotspot finder product with Bright House
Networks, Comcast and Shaw
* Signed a contract with Kyrio (a CableLabs subsidiary)
for "white label" hub services
* Expanded our hotspot finder and connection product
suite delivered to Deutsche Telekom "Business Wi-Fi"
product line with usage reporting and in-flight
connectivity
* Signed nine new third-party verification (TPV)
agreements, including six within the energy sector.
We're delighted to be providing TPV services to
Direct Energy and welcome them to the VoiceLog family
Current Trading and Strategy
* We have initiated a strategic review to assist the
Board in determining the future composition of the
group, including its capital structure and business
lines. No decisions have been made at this time
* Current trading remains in line with the Board's
expectations and consistent with the recent trading
conditions experienced by the Company
* The Company expects that revenues and EBITDA in 2017
will continue to be affected by the secular decline
in the volume of billable long distance and operator
service calls initiated on landline phones, coupled
with a decision by a local exchange carrier to exit
third-party billing as described in the Company's
announcements dated August 9, 2016 and September 12,
2016
* Although still in its first several months, our
direct billing initiative has developed solid
traction, and we expect this to continue over the
course of 2017. Given the relatively early stage of
this product offering, coupled with the strategic
review that is underway, we expect to provide
financial performance guidance later this year
Commenting on the results, Patrick D. Heneghan, Non-Executive
Chairman, said:
"2016 was a remarkable year. While earning $0.04 per share of
net income and generating $7.7 million of cash flow, the Company
expanded its service platform to meet the direct billing needs of
customers. This was a complex task, requiring broad revisions to
intricate processes and historical practices. I cannot overstate
both the challenge and the success."
INQUIRIES:
Billing Services Group
Limited +1 210 949 7000
Norman M. Phipps
finnCap Limited +44 (0) 20 7220 0500
Stuart Andrews/Scott
Mathieson
BSG Media Relations +1 210 326 8992
Leslie Komet Ausburn
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
2016 was a milestone year for the Company. In addition to
delivering impressive financial results in the circumstances, we
expanded our service platform to allow direct billing and payment
options to end-user consumers, giving our clearinghouse customers
an alternative to LECs as their billing and collection vehicle.
Revenue and earnings
We achieved $5.7 million of EBITDA on revenues of $30.2 million.
As expected, both figures were lower than the 2015 results. Net
income, however, was a different story. Driven by a 2.0 percentage
point increase in gross margin, a $1.9 million reduction in
operating expenses and the benefit of accounting treatment
resulting in a favorable recalibration of liabilities related to
class action litigation, we earned $10.9 million of net income
($0.04 per share), which compares favorably to the $8.7 million
($0.03 per share) earned in 2015.
The core business of billing and clearing for landline
telecommunications providers continued to be adversely affected by
the secular migration from landline to wireless communications. In
contrast, our wireless business enjoyed solid gains in revenue and
new clients during 2016, and we expect 2017 to exceed 2016, which
was our best year since we acquired the business.
Cash flow
We generated $7.7 million of cash in 2016, resulting in a
year-end cash balance of $15.1 million. With the class action
litigation against two LECs in its final stages and settlement of
the FTC matter behind us, we are left with a strong cash position,
positive working capital ($4.2 million) and a conservative capital
structure (99% equity vs. 1% debt).
One of the most important and actively discussed issues facing
management and the Board is the optimal allocation of our capital
resources. Parties owning more than 55% of the Company's
outstanding shares are directly represented on the Board.
Accordingly, the Board's interest in capital allocation is both
intense and fully aligned with the best interests of all
shareholders.
In light of the Board's focus on shareholder value, we have
initiated a strategic review to assist the Board in determining the
future composition of the group, including its capital structure
and business lines. No decisions have been made at this time.
Expansion of billing options in landline business
Some 25+ years ago, our business was founded to serve a newly
allowed telecommunications industry which competed against the
historical monopoly (which evolved into today's LECs). BSG's raison
d'être was to provide the newly established telecommunications
providers with a simple, economical and reliable way to bill and
collect from end-user consumers for services. BSG's value
proposition was largely driven by scale, because it had the ability
to aggregate call records from multiple competing
telecommunications companies and submit them to the LECs to be
billed and collected in the most economical manner. BSG quickly
became the industry leader for LEC billing.
In August 2016, one of the largest LECs informed us that it
would discontinue its longstanding third-party billing and
collection service for a substantial portion of our customers'
transactions. In effect, one leg from a 25+ year-old sturdy chair
was pulled out from beneath us.
Our team got to work immediately. As the result of advances in
billing, payment and money-transfer technology, there has been a
proliferation of new options to bill and collect funds in a simple,
economical and reliable way. We rapidly developed a new service
under which BSG, on behalf of its customers, can bill and collect
directly from end-user consumers (i.e., without going through a
LEC). End-users can make payments through an online portal or
through the mail.
We commenced the direct billing service in December 2016 for
customers affected by the substantial cessation of third-party
billing by the single large LEC. Our customers have been pleased
with the simplicity, transparency and collection rates of the
direct billing service.
Expansion of services to wireless applications
Our business plan has focused on an expansion of services
offered for wireless telecommunications applications. The strategy
underlying the focus on wireless telecommunications applications
has been to mitigate the secular decline in revenue from
landline-based services. Revenues arising from services to wireless
markets are on a promising trajectory, but the gains to date have
been insufficient to offset fully the revenue decline in the
landline sector.
Outlook
We will continue to be adversely affected by the displacement of
landline phone transactions by wireless devices. We expect
continuation of growth in revenue from services to wireless markets
and our direct bill initiative. Given the relatively early stage of
the latter product offering, coupled with the strategic review that
is underway, we expect to provide financial performance guidance
later this year.
Closing comments
Our employees rose to meet a challenge affecting the foundation
of our business. They operate with a culture and enthusiasm more
typical of a start-up company, making BSG an exciting and
innovative place to work. To them, I am most grateful.
Our Board of Directors has provided valuable guidance and
insight once again in 2016. They asked the right questions, made
insightful suggestions and focused intently on actions to ensure
growth in shareholder value. To them, all shareholders are greatly
indebted.
Norman M. Phipps
Chief Executive Officer
FINANCIAL REVIEW
Financial Review of the Year Ended December 31, 2016
The Company's audited results for the year ended December 31,
2016 are compared against the year ended December 31, 2015 in the
accompanying financial statements. BSG's consolidated financial
statements are prepared in conformity with United States generally
accepted accounting principles ("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.
Cost of Services and Gross Profit. Cost of services arises
primarily in the Company's clearinghouse business. Cost of services
in the clearinghouse business includes billing and collection fees
charged by local exchange carriers ("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. Deferred finance costs are amortized over
the term of the related loans.
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, 2016 to
the Year Ended December 31, 2015
Total Revenues. Total revenues of $30.2 million in 2016 were
$6.2 million, or 17%, lower than the $36.4 million of revenues
recorded during 2015. The $6.2 million decrease reflects lower
transaction volumes across all clearing, settlement and customer
service activities provided for landline service providers,
partially offset by higher managed service fees from BSG Wireless'
offerings.
Cost of Services and Gross Profit. Cost of services in 2016 was
$14.2 million, compared to $17.8 million in 2015. The $3.6 million,
or 20%, 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 $16.0 million of gross
profit in 2016, compared to $18.5 million in 2015. The gross margin
of 53.0% in 2016 is 2.0 percentage points higher than the 51.0%
margin achieved in 2015. The improved gross margin in 2016 resulted
from a favorable mix of services from the landline business and a
larger percentage of revenue from the wireless business, which
operates at a higher gross margin level than the landline
business.
Operating Expenses. Operating expenses were $10.3 million in
2016, compared to $12.2 million in 2015. The $1.9 million, or 16%,
decrease largely reflects reduced compensation expense arising from
headcount reductions, compensation adjustments and lower legal
expenses.
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). The Company generated $5.7 million of EBITDA during
2016, compared to $6.4 million during 2015. A reconciliation of net
income and EBITDA in each period follows:
Year Ended December 31
$ millions 2016 2015
Net income $ 10.9 $ 8.7
Depreciation expense 1.4 1.9
Amortization of intangibles 0.6 0.6
Impairment charge - 0.2
Stock-based compensation
expense - 0.1
Interest expense - 0.1
Income tax expense 2.4 0.3
All other income, net (9.6) (5.5)
EBITDA $ 5.7 $ 6.4
Depreciation and Amortization Expense. Depreciation and
amortization expense totalled $2.0 million in 2016, compared to
$2.5 million in 2015. The $0.5 million decline reflects cessation
of depreciation charges on several categories of capitalized
software development costs for which accumulated depreciation
reached the assets' respective gross carrying values.
Impairment Charge. In 2015, the Company recorded a $0.2 million
non-cash impairment charge against intangible assets. The charge
reflected a write-off of the unamortized carrying value of a
wireless product offering that was discontinued in 2015. The
non-cash impairment charge was not included as a deduction to
earnings for purposes of calculating EBITDA.
Stock-based Compensation Expense. The Company recognized $0.1
million of stock-based compensation expense during 2015 which is
included within operating expenses. Stock-based compensation
expense, all of which is non-cash and related to stock options, was
not included as a deduction to earnings for purposes of calculating
EBITDA.
Interest Expense. In 2015, the Company incurred $0.1 million of
interest expense. Interest expense includes cash payments of
interest on borrowed money. The $0.1 million of lower interest
expense during 2016 primarily reflected a reduced level of
outstanding debt. During 2016, the average debt outstanding was
less than $0.1 million compared to an average of $2.7 million in
2015.
Other Income. The Company realized $9.6 million of net other
income during 2016, compared to $5.5 million in 2015. Net other
income in 2016 was largely attributable to accounting treatment
adjustments to indemnification amounts under pending class action
litigation, and a net gain arising from the translation of assets
and liabilities denominated in British Sterling. The $5.5 million
of net other income recognized in 2015 was largely attributable to
nonrecurring income arising from the accounting treatment of
indemnification charges to former and current clients for their
respective shares of direct end-user refunds and allocable expenses
related to the class action litigation against two LECs, coupled
with write-offs of certain balances owed by former clients, offset
by litigation-related accruals.
Other income arises from miscellaneous items typically of a
nonrecurring nature. Accordingly, other income items were not
included as earnings for purposes of computing EBITDA.
Change in Cash. BSG's cash balance at December 31, 2016 was
$15.1 million, compared to $7.4 million at December 31, 2015. The
$7.7 million increase in cash during 2016 is largely attributable
to a $7.7 million reduction of restricted cash associated with the
payment of class action-related expenses and $1.5 million of net
receipts on purchased receivables, offset by $0.9 million of
capital expenditures, $0.6 million of exchange rate differences and
a $0.5 million use of cash in operating activities.
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, 2014, pursuant to a 2012
agreement with one LEC, the LEC released a net of $14.3 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 2015 and 2016, a net amount of $5.0 million and $7.7
million, respectively, were transferred from the restricted cash
account to satisfy indemnification obligations, reducing restricted
cash to $1.7 million.
Change in Third-Party Payables. Third-party payables at December
31, 2016, inclusive of long-term liabilities, were $10.3 million,
compared to $9.6 million at December 31, 2015. The $0.7 million
increase in third-party payables during 2016 resulted from $4.2
million of write-offs of amounts owed from former clients, offset
by $2.7 million of ordinary course settlement activities and a $0.8
million reduction arising from net collections of purchased
receivables.
When the Company purchases receivables from a customer, the
Company typically advances approximately 50% of the gross
receivable amount to the customer. The remaining 50% is classified
as a third-party payable until the Company completes settlement
activities related to the purchased receivable. During 2016, the
Company decreased purchased receivables by $1.5 million, which
resulted in a $0.8 million decrease in third-party payables.
Change in Accrued Liabilities. Accrued liabilities at December
31, 2016 were $6.3 million, compared to $24.2 million at December
31, 2015. The $17.9 million decrease in accrued liabilities
resulted from $7.7 million of disbursements for indemnification
liabilities to LECs under pending class action litigation (see
"Change in Restricted Cash" above), $7.6 million of payments and
reserve adjustments to the accrual for legal expenses, $1.6 million
of payments to the FTC in connection with a regulatory settlement
and $1.0 million of net reductions arising from ordinary course
payments and adjustments.
Capital Expenditures. During 2016, the Company invested $0.9
million in capital expenditures, primarily for capitalized software
development costs and computer equipment. In 2015, capital
expenditures totalled $1.5 million.
Cash Flows for the Year Ended December 31, 2016
Cash flow used in operating activities. Net cash used in
operating activities was $0.5 million during 2016. Net cash used
was principally attributable to a $17.9 million decrease in accrued
liabilities and a $0.7 million decrease in trade accounts payable,
offset by $10.9 million of net income, a $2.5 million increase in
deferred taxes, $2.0 million of depreciation and amortization, a
$1.4 million decrease in accounts receivable and a $0.7 million
increase in third-party payables.
Cash flow provided by investing activities. Net cash provided by
investing activities was $1.0 million, reflecting $1.5 million of
net receipts on purchased receivables and $0.3 million of
translation adjustments to the carrying value of intangible assets,
offset by $0.9 million of capital expenditures.
Cash flow provided by financing activities. Cash provided by
financing activities was $7.8 million, primarily attributable to a
$7.7 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.
Billing Services Group Limited audited financial statements are
available here:
http://www.rns-pdf.londonstockexchange.com/rns/5357A_-2017-3-24.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUMCWUPMPUC
(END) Dow Jones Newswires
March 29, 2017 02:00 ET (06:00 GMT)
Billing Services (LSE:BILL)
Historical Stock Chart
From Apr 2024 to May 2024
Billing Services (LSE:BILL)
Historical Stock Chart
From May 2023 to May 2024