TMCnet News
Comverse Announces Fiscal 2014 Second Quarter Results; Conference Call to be Held Today at 8:00 AM(GlobeNewswire Via Acquire Media NewsEdge) WAKEFIELD, Mass., Sept. 9, 2014 (GLOBE NEWSWIRE) -- Comverse, Inc. ("Comverse") (Nasdaq:CNSI) today announced its results for the second fiscal quarter ended July 31, 2014. Consolidated Highlights: Below is selected consolidated financial information for the three and six months ended July 31, 2014 and 2013, prepared in accordance with generally accepted accounting principles ("GAAP"), except as noted. Comverse, Inc.:Three Months Ended July 31,Six Months Ended July 31,(In thousands)2014201320142013 Total revenue $ 115,320 $ 169,753 $ 234,452 $ 325,571 Costs and expenses Cost of revenue 75,860 103,484 156,324 194,448 Research and development, net 14,746 16,860 30,278 32,940 Selling, general and administrative 29,549 35,349 63,694 72,059 Other operating expenses 1,912 2,633 4,655 6,854 Total costs and expenses 122,067 158,326 254,951 306,301 (Loss) income from operations (6,747) 11,427 (20,499) 19,270 Expense adjustments 7,533 6,702 15,763 4,586 Comverse performance (1) 786 18,129 (4,736) 23,856 (Loss) income before income tax expense (10,240) 12,848 (22,033) 14,545 Income tax expense (6,626) (29,935) (10,964) (34,772) Net loss (16,866) (17,087) (32,997) (20,227) Basic & diluted loss per share $ (0.75) $ (0.77) $ (1.48) $ (0.92) Interest expense (231) (166) (354) (354) Depreciation and amortization $ (4,822) $ (4,748) $ (9,561) $ (9,317) Operating margin (5.9)% 6.7% (8.7)% 5.9% Comverse performance margin 0.7% 10.7% (2.0)% 7.3% Net cash provided by (used in) operating activities (2) $ (13,785) $ (222) $ (49,384) $ 9641 (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 six months ended July 31, 2013. "As part of the on-going transformation of Comverse, we have realigned the company to focus on faster growing areas within the billing and digital services markets. We are pleased with the traction we are achieving despite the ongoing macro-economic challenges we face," said Philippe Tartavull, President and CEO of Comverse, Inc. "Additionally, we have identified incremental areas where we can improve our efficiency without compromising our effectiveness in serving the needs of our customers. We believe these initiatives should enable the company to achieve positive operating cash flow in the second half of our fiscal year and going forward." Expanded 2014 Restructuring Initiatives On September 9, 2014, we commenced an expansion of our previously disclosed 2014 restructuring plan. We expect that as a result of the restructuring plan (as expanded), our global workforce will be reduced by approximately 14% and that our annual cost of revenue and operating expenses will decrease by approximately $30 million to $40 million. The restructuring plan has been facilitated by efficiencies gained through initiatives implemented in recent fiscal periods and the expectation that software will account for a higher portion of our revenue in future periods. The restructuring plan is designed to align operating costs and expenses with currently anticipated revenue. The restructuring plan (as expanded) is expected to include reduction of workforce included in cost of revenue, research and development and selling, general and administrative expenses. The aggregate total cost of the 2014 restructuring plan (as expanded) is currently expected to be approximately $15.0 million to $17.0 million, primarily related to severance costs which are expected to be accrued and paid by January 31, 2015. As previously disclosed, the aggregate total cost of the 2014 restructuring plan (prior to expansion) was expected to be approximately $9.0 million. In relation to this restructuring plan, we recorded severance-related costs of $5.0 million and paid $3.5 million during the six months ended July 31, 2014. Business Segment Highlights: Three Months Ended July 31,Six Months Ended July 31, 2014201320142013 (Dollars in thousands)SEGMENT RESULTS BSS Segment revenue $ 60,155 $ 74,158 $ 117,027 $ 150,422 Gross margin 45.3% 35.4% 41.8% 37.8% Income from operations 14,900 7,087 21,355 22,788 Operating margin 24.8% 9.6% 18.2% 15.1% Segment performance 15,600 7,820 22,752 24,318 Segment performance margin 25.9% 10.5% 19.4% 16.2%Digital Services Segment revenue $ 55,165 $ 95,595 $ 117,425 $ 175,149 Gross margin 33.7% 51.5% 37.1% 45.5% Income from operations 11,107 40,970 29,499 63,812 Operating margin 20.1% 42.9% 25.1% 36.4% Segment performance 11,109 41,131 29,503 64,030 Segment performance margin 20.1% 43.0% 25.1% 36.6%All Other Loss from operations $ (32,754) $ (36,630) $ (71,353) $ (67,330) Segment performance (25,923) (30,822) (56,991) (64,492) Selected Balance Sheet Highlights: Below is selected balance sheet data: As of (In millions)July 31, 2014April 30, 2014 Cash and cash equivalents $ 181.6 $ 210.1 Restricted cash (including long-term restricted cash) and bank time deposits 72.7 73.5 Total $ 254.3 $ 283.6 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, September 9, 2014 at 8:00 a.m. ET. To listen to the conference call live, dial (678) 825-8369. The identification code is 92239125. 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 September 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 92239125. 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 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. 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. COMVERSE, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)(In thousands, except share and per share data) Three Months Ended July 31,Six Months Ended July 31, 2014201320142013 Revenue: Product revenue $ 20,931 $ 56,491 $ 48,286 $ 109,395 Service revenue 94,389 113,262 186,166 216,176 Total revenue 115,320 169,753 234,452 325,571 Costs and expenses: Product costs 11,003 28,751 25,808 56,385 Service costs 64,857 74,733 130,516 138,063 Research and development, net 14,746 16,860 30,278 32,940 Selling, general and administrative 29,549 35,349 63,694 72,059 Other operating expenses: Restructuring expenses 1,912 2,633 4,655 6,854 Total other operating expenses 1,912 2,633 4,655 6,854 Total costs and expenses 122,067 158,326 254,951 306,301 (Loss) income from operations (6,747) 11,427 (20,499) 19,270 Interest income 100 143 215 315 Interest expense (231) (166) (354) (354) Foreign currency transaction gain (loss), net (2,949) 888 (930) (5,028) Other expense, net (413) 556 (465) 342 (Loss) income before income tax expense (10,240) 12,848 (22,033) 14,545 Income tax expense (6,626) (29,935) (10,964) (34,772) Net loss $ (16,866) $ (17,087) (32,997) (20,227) Weighted average common shares outstanding: Basic & diluted 22,401,902 22,186,729 22,348,835 22,097,619 Loss per share: Basic & diluted $ (0.75) $ (0.77) $ (1.48) $ (0.92) COMVERSE, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)(In thousands, except share and per share data) July 31,January 31, 20142014ASSETS Current assets: Cash and cash equivalents $ 181,587 $ 254,580 Restricted cash and bank deposits 63,650 34,343 Accounts receivable, net of allowance of $4,631 and $6,945, respectively 106,465 89,361 Inventories 22,011 16,166 Deferred cost of revenue 12,322 14,500 Deferred income taxes 2,089 2,329 Prepaid expenses 23,008 17,000 Other current assets 6,731 1,680 Total current assets 417,863 429,959 Property and equipment, net 47,335 41,541 Goodwill 150,630 150,346 Intangible assets, net 3,813 5,153 Deferred cost of revenue 36,314 45,717 Deferred income taxes 1,141 1,720 Long-term restricted cash 9,017 33,815 Other assets 39,025 40,586 Total assets $ 705,138 $ 748,837LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued expenses $ 158,549 $ 168,406 Deferred revenue 247,797 239,902 Deferred income taxes 833 514 Income taxes payable 1,501 2,102 Total current liabilities 408,680 410,924 Deferred revenue 100,714 113,426 Deferred income taxes 45,728 43,735 Other long-term liabilities 149,709 147,942 Total liabilities 704,831 716,027 Commitments and contingencies Equity: Common stock, $0.01 par value - authorized, 100,000,000 shares; issued 22,570,673 and 22,286,123 shares, respectively; outstanding, 22,358,589 and 22,251,226 shares, respectively 226 223 Treasury stock, at cost, 212,084 and 34,897 shares, respectively (5,569) (1,024) Accumulated deficit (57,248) (24,251) Additional paid in capital 40,490 34,530 Accumulated other comprehensive income 22,408 23,332 Total equity 307 32,810 Total liabilities and equity $ 705,138 $ 748,837 COMVERSE, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)(In thousands) Six Months Ended July 31, 20142013 Cash flows from operating activities: Net loss $ (32,997) $ (20,227) Non-cash operating items: Depreciation and amortization 9,561 9,317 Provision for doubtful accounts 331 890 Stock-based compensation expense 5,923 5,343 Deferred income taxes 3,131 4,023 Inventory write-downs 1,108 2,913 Other non-cash items, net 446 (1,217) Changes in assets and liabilities: Accounts receivable (16,392) 3,521 Inventories (8,624) (663) Deferred cost of revenue 11,592 21,802 Prepaid expense and other current assets (5,580) (1,509) Accounts payable and accrued expense (16,195) (7,649) Income taxes (1,053) 14,332 Deferred revenue (5,750) (30,985) Tax contingencies 3,598 5,519 Other assets and liabilities 1,517 4,231 Net cash (used in) provided by operating activities (49,384) 9,641 Cash flows from investing activities: Proceeds from sales and maturities of investments — 100 Purchases of property and equipment (11,472) (4,630) Advanced payment for a planned acquisition (2,678) — Net change in restricted cash and bank deposits (4,027) (27,569) Proceeds from asset sales 46 61 Other, net — 743 Net cash used in investing activities (18,131) (31,295) Cash flows from financing activities: CTI capital contribution — 25,000 Payment for repurchase of common stock in connection with tax liabilities upon settlement of stock awards (972) (770) Payment for repurchase of common stock under repurchase program (3,573) — Proceeds from exercises of stock options 40 556 Net cash (used in) provided by financing activities (4,505) 24,786 Effects of exchange rates on cash and cash equivalents (973) (2,049) Net (decrease) increase in cash and cash equivalents (72,993) 1,083 Cash and cash equivalents, beginning of period 254,580 262,921 Cash and cash equivalents, end of period $ 181,587 $ 264,004 Non-cash investing transactions: Accrued but unpaid purchases of property and equipment $ 4,587 $ 3,278 Inventory transfers to property and equipment $ 1,673 $ 2,495 COMVERSE, INC. AND SUBSIDIARIESCONSOLIDATED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES(UNAUDITED) Table of Reconciliation from GAAP Income (loss) from operations to Non GAAP Comverse PerformanceThree Months Ended July 31,Six Months Ended July 31, 2014201320142013 (Dollars in thousands) (Loss) income from operations $ (6,747) $ 11,427 $ (20,499) $ 19,270 Expense Adjustments: Stock-based compensation expense 2,985 2,249 5,923 5,343 Amortization of intangible assets 700 729 1,395 1,378 Compliance-related professional fees 335 370 704 806 Compliance-related compensation and other expenses — 155 (70) 207 Strategic related costs 1,100 — 2,390 — Impairment of property and equipment 169 5 178 43 Certain litigation settlements and related costs 41 1 5 (23) Italian VAT refund recovery recorded within operating expenses — — — (10,861) Restructuring expenses 1,912 2,633 4,655 6,854 Gain on sale of fixed assets (14) (7) (17) (18) Other 305 567 600 857 Total expense adjustments 7,533 6,702 15,763 4,586 Comverse performance $ 786 $ 18,129 $ (4,736) $ 23,856 COMVERSE, INC. AND SUBSIDIARIESBUSINESS SEGMENT INFORMATION(UNAUDITED) BSSDigital ServicesAll OtherConsolidated (In thousands)Three Months Ended July 31, 2014 Total revenue $ 60,155 $ 55,165 $ — $ 115,320 Total costs and expenses $ 45,255 $ 44,058 $ 32,754 $ 122,067 Income (loss) from operations $ 14,900 $ 11,107 $ (32,754) $ (6,747) Computation of segment performance: Segment revenue $ 60,155 $ 55,165 $ — Total costs and expenses $ 45,255 $ 44,058 $ 32,754 Segment expense adjustments: Stock-based compensation expense — — 2,985 Amortization of intangibles assets 700 — — Compliance-related professional fees — — 335 Strategic-related costs — — 1,100 Impairment of property and equipment — 2 167 Certain litigation settlements and related cost — — 41 Restructuring expenses — — 1,912 Gain on sale of fixed assets — — (14) Other — — 305 Segment expense adjustments 700 2 6,831 Segment expenses 44,555 44,056 25,923 Segment performance $ 15,600 $ 11,109 $ (25,923) Interest expense $ — $ — $ (231) $ (231) Depreciation $ (862) $ (1,260) $ (2,000) $ (4,122) COMVERSE, INC. AND SUBSIDIARIESBUSINESS SEGMENT INFORMATION(UNAUDITED) BSSDigital Services All OtherConsolidated (In thousands)Three Months Ended July 31, 2013 Total revenue $ 74,158 $ 95,595 $ — $ 169,753 Total costs and expenses $ 67,071 $ 54,625 $ 36,630 $ 158,326 Income (loss) from operations $ 7,087 $ 40,970 $ (36,630) $ 11,427 Computation of segment performance: Segment revenue $ 74,158 $ 95,595 $ — Total costs and expenses $ 67,071 $ 54,625 $ 36,630 Segment expense adjustments: Stock-based compensation expense — — 2,249 Amortization of intangibles assets 729 — — Compliance-related professional fees — — 370 Compliance-related compensation and other expenses — 162 (7) Impairment of property and equipment 3 — 2 Certain litigation settlements and related cost — — 1 Restructuring expenses — — 2,633 Gain on sale of fixed assets 1 (1) (7) Other — — 567 Segment expense adjustments 733 161 5,808 Segment expenses 66,338 54,464 30,822 Segment performance $ 7,820 $ 41,131 $ (30,822) Interest expense $ — $ — $ (166) $ (166) Depreciation $ (1,049) $ (1,289) $ (1,681) $ (4,019) COMVERSE, INC. AND SUBSIDIARIESBUSINESS SEGMENT INFORMATION(UNAUDITED) BSSDigital ServicesAll OtherConsolidated (In thousands)Six Months Ended July 31, 2014 Total revenue $ 117,027 $ 117,425 $ — $ 234,452 Total costs and expenses $ 95,672 $ 87,926 $ 71,353 $ 254,951 Income (loss) from operations $ 21,355 $ 29,499 $ (71,353) $ (20,499) Computation of segment performance: Segment revenue $ 117,027 $ 117,425 $ — Total costs and expenses $ 95,672 $ 87,926 $ 71,353 Segment expense adjustments: Stock-based compensation expense — — 5,923 Amortization of intangibles assets 1,395 — — Compliance-related professional fees — — 704 Compliance-related compensation and other expenses — 1 (71) Strategic-related costs — — 2,390 Impairment of property and equipment — 2 176 Certain litigation settlements and related cost — — 5 Restructuring expenses — — 4,655 Gain on sale of fixed assets 2 1 (20) Other — — 600 Segment expense adjustments 1,397 4 14,362 Segment expenses 94,275 87,922 56,991 Segment performance $ 22,752 $ 29,503 $ (56,991) Interest expense $ — $ — $ (354) $ (354) Depreciation $ (1,745) $ (2,524) $ (3,897) $ (8,166) COMVERSE, INC. AND SUBSIDIARIESBUSINESS SEGMENT INFORMATION(UNAUDITED) BSSDigital Services All OtherConsolidated (In thousands)Six Months Ended July 31, 2013 Total revenue $ 150,422 $ 175,149 $ — $ 325,571 Total costs and expenses $ 127,634 $ 111,337 $ 67,330 $ 306,301 Income (loss) from operations $ 22,788 $ 63,812 $ (67,330) $ 19,270 Computation of segment performance: Segment revenue $ 150,422 $ 175,149 $ — Total costs and expenses $ 127,634 $ 111,337 $ 67,330 Segment expense adjustments: Stock-based compensation expense — — 5,343 Amortization of intangibles assets 1,378 — — Compliance-related professional fees — — 806 Compliance-related compensation and other expenses 122 218 (133) Impairment of property and equipment 29 1 13 Certain litigation settlements and related cost — — (23) Italian VAT refund recovery recorded within operating expense — — (10,861) Restructuring expenses — — 6,854 Gain on sale of fixed assets 1 (1) (18) Other — — 857 Segment expense adjustments 1,530 218 2,838 Segment expenses 126,104 111,119 64,492 Segment performance $ 24,318 $ 64,030 $ (64,492) Interest expense $ — $ — $ (354) $ (354) Depreciation $ (1,886) $ (2,509) $ (3,544) $ (7,939)CONTACT: Sheila Ennis ICR for Comverse, Inc. (415) 430-2073 [email protected] Source: Comverse, Inc. 2014 GlobeNewswire, Inc. |