TIDMBILL
RNS Number : 3987U
Billing Services Group Limited
29 March 2019
For Immediate Release
Billing Services Group Limited
("BSG" or the "Company")
Audited results for the year ended December 31, 2018
EXPENSE CONTROL LEADS TO STABLE EBITDA
(March 29, 2019) San Antonio, Texas, USA - 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,
2018.
Financial Highlights
(All amounts in US$)
Year Ended December 31
2018 2017
------------------- -------------------
Revenues $ 16.1 million $ 21.1 million
Gross margin 60.4% 56.6%
Cash operating expenses $ 9.0 million $ 11.0 million
EBITDA (1) $ 0.8 million $ 0.9 million
Net loss $ (7.8) million $ (6.7) million
Net loss per basic $ (0.05) per share $ (0.02) per share
share
Cash balance at end
of period $ 9.2 million $ 11.5 million
(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).
-- Experienced $5.0 million decline in revenue ($16.1 million
vs. $21.1 million in 2017) due largely to discontinuation of
third-party billing by Verizon, a large local exchange carrier
(LEC)
-- Improved gross margin by 3.8 percentage points (60.4% vs. 56.6% in 2017)
-- Reduced operating expenses by $2.0 million ($9.0 million vs. $11.0 million in 2017)
-- Generated $0.8 million of EBITDA (2017: $0.9 million)
-- Recognized $10.0 million of non-cash impairment charges
against goodwill (2017: $15.3 million)
-- Distributed $1.2 million in cash dividends
-- Ended year with $9.2 million of cash (2017: $11.5 million)
-- Ended year with $6.6 million of working capital (2017: $5.9 million)
BSG Wireless and Third Party Verification ("TPV") Operational
Highlights
-- Renewed our hub and WLDS contract with AT&T with new
terms that increase monthly revenue potential
-- Renegotiated our hub and mobile applications contracts with
Comcast to increase the revenue opportunity
-- Signed a new hub contract with Spectrum (Charter)
-- Reduced expenses at BSG Wireless by $1.7 million on an annualized basis
-- Reduced costs and improved stability by replacing the legacy
UK data center with new cloud infrastructure
-- Renewed our contract with a national cable company, including
additional TPV volume in new markets
-- Launched new TPV markets with Constellation Energy
-- Increased both TPV volumes and revenues with 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. There have been
four material actions taken as a result of the review:
-- Completed a $5.0 million cash tender offer in December 2017
-- Engaged investment banks and initiated discussions to sell BSG Wireless in 2017
-- Paid a $1.2 million cash dividend in July 2018
-- Renewed discussions with possible buyers for all or parts of the business in 2018
-- Following a sale of any portion of the group's businesses,
the Board will consider further cash distributions and other
actions with respect to any remaining assets or business lines.
-- Trading for the year ended December 31, 2018 was in line with
the Board's expectations and consistent with the recent trading
conditions experienced by the Company.
-- During the second half of 2018, the Company recognized $10.0
million of non-cash impairment charges relating to goodwill
recorded in its wireline billing and clearing business and its
third-party verification business. Goodwill impairment charges
during 2018 eliminated all goodwill recorded on the Company's
balance sheet.
-- The Company will not provide guidance on projected future financial performance at this time.
Commenting on the results, Denham H.N. Eke and Jason R. Wolff,
Non-Executive Co-Chairmen, said:
"The 2018 results demonstrate both the Company's disciplined
response to challenging circumstances and the resiliency of its
business model. The $0.8 million of EBITDA generated during the
year enabled the Company to pay $1.2 million of cash dividends and
maintain a strong balance sheet."
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's headquarters is located in San Antonio, Texas, USA. The
Company's shares are traded on the London Stock Exchange (AIM:
BILL). For more information on BSG, visit
(www.bsgclearing.com).
Chief Executive's Statement
Our 2018 financial performance reflects the resilience of our
business model. The Company generated $0.8 million of EBITDA, in
line with 2017 EBITDA of $0.9 million, on revenues which declined
by $5.0 million. We distributed $1.2 million in cash dividends and
ended the year with $9.2 million in cash and $6.6 million of
working capital.
Financial performance
Proactive measures allowed the Company to maintain positive
EBITDA despite a 24% decline in revenues.
The sizable decrease in revenues was expected. As announced in
May 2017, Verizon withdrew from third-party billing services
effective January 1, 2018. Verizon's action paralleled AT&T's
withdrawal effective in December 2016.
To lessen the earnings effect from Verizon's discontinuation of
third-party billing, we reduced operating expenses by $2.0 million.
Much of this was accomplished through the realignment of BSG
Wireless, our Wi-Fi data solutions business. Specifically, we moved
a portion of sales, data management, accounting and financial
functions from the UK to the US. The realignment resulted in a
substantial reduction in compensation and other expenses. The
Company's gross margin concurrently improved by 3.8 percentage
points, largely as a result of a mix of revenues favoring higher
margin services.
BSG's $9.4 million pre-tax loss in 2018 largely reflects $10.0
million of non-cash impairment charges to goodwill. The impairment
charges related to our wireline billing and clearing business and
our third-party verification business. During 2017, the Company had
partially written down the goodwill value carried in both
businesses. The additional impairment charges during 2018
eliminated all goodwill value carried in both businesses.
Business lines
BSG's core business, a billing and clearing service for wireline
phone transactions, is far smaller than it was a decade ago because
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 over time of
transaction volume has extensively affected the profitability of
the business.
We have taken several actions aimed to ensure the viability of
the business. In 2016, for example, we introduced a direct billing
service under which BSG submits invoices and collects funds
directly from consumers, rather than bill through LECs. The direct
billing service is a good fit, because it operates efficiently
using the Company's third-party billing platform to perform all
critical data management functions.
In our TPV business, branded as VoiceLog, we independently
confirm transactions mostly for utility services,
cable/telecommunication companies and healthcare providers in the
US. The business is growing as we add high-volume customers.
Our wireless business (BSG Wireless) provides Wi-Fi data
clearing services to wireless network operators in the US and
Europe. As discussed above, we made substantial expense reductions
within the operation during 2018.
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 following are the most
visible actions taken to date in connection with the strategic
review:
-- 2017 Engaged in discussions with possible acquirers of BSG Wireless
-- 2017 Completed a $5.0 million tender offer
-- 2018 Distributed $1.2 million in a cash dividend
-- 2018 Renewed discussions with possible buyers for all or parts of the business
Going Forward
Our pursuit of strategic objectives is not diminishing our focus
on the fundamentals of the business lines. We are endeavouring to
maximize cash flow through better pricing, new sources of revenue,
expense control and opportunities to leverage the billing platform.
The Board will remain focused on the future composition of the
group and the optimization of capital allocation.
In light of the potentially significant changes in the business,
we will not provide guidance on future financial performance.
Our Board and Employees
We have a small Board--two non-executive directors (who serve as
Co-Chairmen) and me. The three of us own (or represent parties who
own) approximately 55% of shares outstanding. For that reason,
shareholder interests are of paramount importance to all three of
us. The Co-Chairmen are highly engaged in strategic decisions.
Their insights and guidance have added value for shareholders and
management.
It would be impossible for me to overstate the dedication and
innovation of our employees. They thoroughly understand the
subtleties of all our business services. They collaborate and
implement changes with extraordinary teamwork and precision. They
have been able to make operations run smoothly, even under the
strain of lower headcount and the ever-increasing complexity of our
businesses. To them, I extend my heartfelt thanks.
Sincerely,
Norman M. Phipps
Chief Executive Officer
FINANCIAL REVIEW
Financial Review of the Year Ended December 31, 2018
The Company's audited results for the year ended December 31,
2018 are compared against the year ended December 31, 2017 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 in the clearinghouse business 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, 2018 to
the Year Ended December 31, 2017
Total Revenues. Total revenues of $16.1 million in 2018 were
$5.0 million, or 24%, lower than the $21.1 million of revenues
recorded during 2017. The $5.0 million decrease primarily reflects
lower transaction volumes across all clearing, settlement and
customer service activities provided for wireline service providers
primarily caused by Verizon's exit from third-party billing,
partially offset by higher managed service fees arising from TPV's
verification services.
Cost of Services and Gross Profit. Cost of services in 2018 was
$6.4 million, compared to $9.1 million in 2017. The $2.7 million,
or 30%, decrease in cost of services largely reflects lower fees
for billing and collection services attributable to the lower level
of transaction volumes. The Company generated $9.7 million of gross
profit in 2018, compared to $11.9 million in 2017. The gross margin
of 60.4% in 2018 is 3.8 percentage points higher than the 56.6%
margin achieved in 2017. The improved gross margin in 2018 resulted
from a larger percentage of revenue from the verification and
wireless businesses, which operate at a higher gross margin level
than the wireline business.
Operating Expenses. Operating expenses were $9.0 million in
2018, compared to $11.0 million in 2017. The $2.0 million, or 18%,
decrease largely reflects $1.1 million of reductions in
compensation and other expenses in BSG Wireless, a $0.4 million
reduction in professional fees and a $0.4 million reduction in
directors' fees and expenses.
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). The Company generated $0.8 million of EBITDA during
2018, compared to $0.9 million during 2017. A reconciliation of net
income and EBITDA in each period follows:
Year Ended December 31
$ millions 2018 2017
Net loss $ (7.8) $ (6.7)
Depreciation expense 1.2 1.3
Amortization of intangibles 0.6 0.6
Impairment charges 10.0 15.3
Income tax (benefit) (1.6) (2.4)
Other income, net (1.6) (7.5)
All other, net -- 0.3
------- ------
EBITDA $ 0.8 $ 0.9
======= ======
Depreciation and Amortization Expense. Depreciation and
amortization expenses totaled $1.8 million in 2018, compared to
$1.9 million in 2017. 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. During 2018 and 2017, the Company recorded
$10.0 million and $15.3 million, respectively, of non-cash
impairment charges against goodwill. Goodwill, which resulted from
acquisitions made by the Company over ten years ago, was deemed
impaired because 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 $1.6 million of other
income, net during 2018, compared to $7.5 million in 2017. Other
income, net in 2018 arose largely from $2.1 million of adjustments
to reserves related to class action litigation and recoveries from
customers, offset by $0.5 million of nonrecurring expenses
associated with severance and similar payment obligations arising
primarily from headcount reductions and other changes in the BSG
Wireless business. 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 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, 2018 was $9.2
million, compared to $11.5 million at December 31, 2017. The $2.3
million decrease in cash during 2018 is largely attributable to a
$1.2 million dividend paid in June 2018, a $1.2 million use of cash
in operating activities, $0.4 million of exchange rate differences
and $0.3 million of capital expenditures, partially offset by $0.5
million released from restricted cash and $0.5 million of net
receipts on purchased receivables.
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, 2016, pursuant to a 2012
agreement with one LEC, the LEC released a net of $1.7 million of
cash reserves. The cash was transferred into a restricted Company
bank account used for funding the Company's indemnification
obligations under class action litigation against the LEC. During
2018 and 2017, net amounts of $0.5 million and $0.8 million,
respectively, were transferred from the restricted cash account to
satisfy indemnification obligations, reducing restricted cash to
$0.3 million at December 31, 2018.
Change in Third-Party Payables. Third-party payables at December
31, 2018, inclusive of long-term liabilities, were $4.4 million,
compared to $6.7 million at December 31, 2017. The $2.3 million
decrease in third-party payables during 2018 resulted largely from
ordinary course settlement activities, which in turn were affected
by the reduction of transaction volume in third-party billing.
Change in Accrued Liabilities. Accrued liabilities at December
31, 2018 were $0.2 million, compared to $2.8 million at December
31, 2017. The $2.6 million decrease in accrued liabilities was
attributable to $1.6 million of settlement payments to the Federal
Trade Commission, a $0.5 million reduction in accrued legal fees
and $0.5 million of ordinary course payments and adjustments.
Capital Expenditures. During 2018, the Company invested $0.3
million in capital expenditures, primarily for capitalized software
development costs and computer equipment. In 2017, capital
expenditures totaled $0.9 million.
Cash Flows for the Year Ended December 31, 2018
Cash flow used in operating activities. Net cash used in
operating activities was $1.2 million during 2018. Net cash used
was principally attributable to a $7.8 million loss, a $2.6 million
reduction in accrued liabilities, a $2.3 million reduction in
third-party payables and a $1.4 million increase in deferred taxes,
offset by $10.0 million of non-cash impairment charges, $1.8
million of depreciation and amortization and a $1.3 million
decrease in accounts receivable.
Cash flow provided by investing activities. Net cash provided by
investing activities was $0.2 million, reflecting $0.5 million in
net receipts on purchased receivables offset by $0.3 million of
capital expenditures.
Cash flow used in financing activities. Cash used in financing
activities was $1.3 million, principally attributable to $1.2
million of dividends and $0.1 million of payments on long-term
debt.
******************************
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 because of new
information, future events or otherwise.
Full report available here:
http://www.rns-pdf.londonstockexchange.com/rns/3987U_1-2019-3-28.pdf
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END
FR PGUCCWUPBGRR
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