<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28536
-----------
BILLING INFORMATION CONCEPTS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
7411 JOHN SMITH DRIVE, SUITE 200 78229
SAN ANTONIO, TEXAS (Zip code)
(Address of principal executive offices)
(210) 949-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicated below is the number of shares outstanding of the
registrant's only class of common stock at May 5, 1997:
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
-------------- -----------
Common Stock, $.01 par value 15,418,187
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1997 and September 30, 1996............................ 3
Condensed Consolidated Statements of Income - For the Three and Six Months Ended
March 31, 1997 and 1996.............................................................................. 4
Condensed Consolidated Statements of Cash Flows - For the Six Months Ended
March 31, 1997 and 1996.............................................................................. 5
Notes to Interim Condensed Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 15
Item 6. Exhibits and Reports on Form 8-K......................................................................... 15
SIGNATURE.............................................................................................................. 16
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
---------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................. $ 29,873 $ 34,135
Accounts receivable ................................................................... 22,083 17,707
Purchased receivables ................................................................. 80,982 70,920
Prepaids and other .................................................................... 1,869 883
-------- --------
Total current assets ................................................................ 134,807 123,645
Property and equipment, net ............................................................. 18,831 9,380
Equipment held under capital leases, net ................................................ 3,363 3,519
Other assets, net ....................................................................... 2,108 1,238
-------- --------
Total assets ........................................................................ $159,109 $137,782
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade ............................................................................... $ 14,453 $ 12,743
Billing customers ................................................................... 47,949 50,974
Accrued liabilities .................................................................. 24,597 25,889
Revolving line of credit for purchased receivables ................................... 25,967 19,010
Current portion of long-term debt .................................................... 973 603
Current portion of obligations under capital leases .................................. 908 896
-------- --------
Total current liabilities .......................................................... 114,847 110,115
Long-term debt, less current portion .................................................... 3,675 2,370
Obligations under capital leases, less current portion .................................. 2,201 2,666
-------- --------
Total liabilities .................................................................. 120,723 115,151
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued or
outstanding at March 31 or September 30 .............................................. 0 0
Common stock, $0.01 par value, 60,000,000 shares authorized; 15,295,720 shares
issued and outstanding at March 31; 15,045,709 shares issued and outstanding
at September 30 ...................................................................... 153 151
Additional paid-in capital .............................................................. 25,475 19,790
Retained earnings ....................................................................... 12,758 2,690
-------- --------
Total stockholders' equity ......................................................... 38,386 22,631
-------- --------
Total liabilities and stockholders' equity ......................................... $159,109 $137,782
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues ...................................... $ 27,382 $ 26,947 $ 55,200 $ 50,301
Cost of services ........................................ 16,936 16,839 34,894 32,145
-------- -------- -------- --------
Gross profit ............................................ 10,446 10,108 20,306 18,156
Selling, general and administrative expenses ............ 2,995 2,964 5,898 5,356
Advance funding program income .......................... (1,735) (1,644) (3,484) (2,968)
Advance funding program expense ......................... 165 320 489 598
Depreciation and amortization expense ................... 826 501 1,347 940
-------- -------- -------- --------
Income from operations .................................. 8,195 7,967 16,056 14,230
Other income (expense):
Interest income ....................................... 190 255 432 486
Interest expense ...................................... (124) (74) (243) (154)
Other, net ............................................ 56 (49) (6) (96)
-------- -------- -------- --------
Total other income ................................... 122 132 183 236
-------- -------- -------- --------
Income before income taxes .............................. 8,317 8,099 16,239 14,466
Income tax expense ...................................... (3,160) (3,078) (6,171) (5,497)
-------- -------- -------- --------
Net income .............................................. $ 5,157 $ 5,021 $ 10,068 $ 8,969
======== ======== ======== ========
Net income per common share ............................. $ 0.32 $ -- $ 0.62 $ --
Pro forma net income per common share (See Note 2) ...... $ -- $ 0.33 $ -- $ 0.60
Weighted average common shares and common share
equivalents outstanding ............................ 16,244 -- 16,220 --
Pro forma weighted average common shares and
common share equivalents outstanding (See Note 2) .. -- 15,189 -- 15,021
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 10,068 $ 8,969
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 1,347 940
Deferred compensation ............................................. 0 7
Gain on disposition of equipment .................................. (73) 0
Changes in operating assets and liabilities:
Increase in accounts receivable .................................. (4,376) (2,255)
Increase in prepaids and other ................................... (986) (107)
Increase (decrease) in accounts payable .......................... 1,710 (1,682)
Increase (decrease) in accrued liabilities ....................... (1,430) 985
Increase in other liabilities .................................... 0 35
-------- --------
Net cash provided by operating activities ............................. 6,260 6,892
Cash flows from investing activities:
Purchases of property and equipment ................................. (10,582) (1,196)
Payments for purchased receivables from billing customers, net ...... (10,062) (7,153)
Payments made to billing customers, net ............................. (3,025) (2,026)
Collections of sales taxes due on behalf of billing customers, net .. 3,886 4,574
Proceeds from sale of equipment ..................................... 125 0
Other investing activities .......................................... (982) 424
-------- --------
Net cash used in investing activities ................................. (20,640) (5,377)
Cash flows from financing activities:
Draws on revolving line of credit for purchased receivables, net .... 6,957 656
Proceeds from issuance of long-term debt ............................ 2,014 0
Payments on long-term debt .......................................... (339) (155)
Payments on capital leases .......................................... (453) (220)
Proceeds from issuance of common stock .............................. 1,939 0
Transfers from affiliates ........................................... 0 4,016
-------- --------
Net cash provided by financing activities ............................. 10,118 4,297
-------- --------
Net increase (decrease) in cash and cash equivalents .................. (4,262) 5,812
Cash and cash equivalents, beginning of period ........................ 34,135 26,770
-------- --------
Cash and cash equivalents, end of period .............................. $ 29,873 $ 32,582
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by Billing Information Concepts Corp. ("Billing") and
subsidiaries (collectively referred to as the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company's management, the accompanying
interim condensed consolidated financial statements reflect all adjustments
that are necessary for a fair presentation of the Company's financial position,
results of operations and cash flows for such periods. All such adjustments are
of a normal recurring nature. It is recommended that these interim condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996. Results of
operations for interim periods are not necessarily indicative of results that
may be expected for any other interim periods or the full fiscal year. Certain
prior period amounts have been reclassified for comparative purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. EARNINGS PER SHARE
On August 2, 1996, U.S. Long Distance Corp. ("USLD") distributed to its
stockholders all of the outstanding shares of common stock of Billing (the
"Distribution") with the result being that Billing became an independent,
publicly held company that owns and operates the billing clearinghouse and
information management services business previously owned by USLD. Since
Billing had no publicly held common shares outstanding prior to the
Distribution, net income per common share and weighted average common shares
outstanding for the quarter and six months ended March 31, 1996 are presented
on a pro forma basis. The pro forma weighted average shares outstanding during
the quarter and six months ended March 31, 1996, gives effect to the number of
shares assumed to be issued had the Distribution occurred at the beginning of
the period and differs from the number of shares assumed to be outstanding at
the end of the period due to the assumed conversions of options and warrants
that were assumed to be outstanding during the period. The unaudited pro forma
per share data is presented for informational purposes only and should not be
considered indicative of the operating results which the Company will achieve
in the future because, among other things, this data is based on historical
rather than prospective information and includes certain assumptions which are
subject to change.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
SFAS No. 128 simplifies the standards for computing EPS previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS, which excludes dilution. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997, and earlier
application is not permitted. After the effective date, SFAS No. 128 requires
restatement of all prior period EPS data presented. Management of the Company
does not anticipate the adoption of SFAS No. 128 will have a material impact on
the Company's financial position or results of operations.
6
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. EARNINGS PER SHARE (CONTINUED)
The pro forma effect of adopting SFAS No. 128 on EPS data is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Primary EPS as reported ........... $ 0.32 $ 0.33 $ 0.62 $ 0.60
Pro forma effect of SFAS No. 128 .. 0.02 0.02 0.04 0.03
------ ------ ------ ------
Basic EPS as restated ............. $ 0.34 $ 0.35 $ 0.66 $ 0.63
====== ====== ====== ======
Fully diluted EPS as reported ..... $ 0.32 $ 0.33 $ 0.62 $ 0.59
Pro forma effect of SFAS No. 128 .. -- -- -- 0.01
------ ------ ------ ------
Diluted EPS as restated ........... $ 0.32 $ 0.33 $ 0.62 $ 0.60
====== ====== ====== ======
</TABLE>
Basic earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share differs from basic earnings per share due to
the assumed conversions of options and warrants that were outstanding during
the period.
NOTE 3. STATEMENT OF CASH FLOWS
Cash payments and non-cash activities during the periods indicated were
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Cash payments for income taxes .................................... $6,648 $4,999
Cash payments for interest ........................................ 835 775
Tax benefit recognized in connection with stock option exercises .. 3,748 0
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party will have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
As of March 31, 1997, the Company is obligated to pay approximately
$3.0 million for license and service fees under a non-exclusive, perpetual
software license and related services agreements. The Company is also obligated
as a guarantor of USLD's equipment financing agreements with certain lenders.
The aggregate unpaid principal amount of indebtedness under such agreements at
March 31, 1997 was approximately $8.5 million, due in varying amounts through
October 2000.
7
<PAGE> 8
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RELATED PARTY TRANSACTIONS
The Company and USLD share a common individual on their respective
boards of directors. Therefore, USLD is considered a related party for purposes
of financial disclosure. The Company provides billing and information
management services for USLD and purchases telecommunications services from
USLD. Transactions under the agreements for these services have been reflected
in the accompanying consolidated financial statements at market prices.
Transactions between the Company and USLD are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Sales to USLD ..................................... $2,362 $2,594
Purchases from USLD ............................... 1,240 1,544
</TABLE>
In addition, at March 31, 1997 and September 30, 1996, the Company's
accounts receivable balance includes $883,000 and $998,000, respectively, and
the billing customers accounts payable balance includes $947,000 and
$1,337,000, respectively, related to billing services performed for USLD. The
Company also had $96,000 and $1,288,000 payable to USLD included in accrued
liabilities at March 31, 1997 and September 30, 1996, respectively, and
$904,000 and $1,034,000 payable to USLD included in long-term debt at March 31,
1997 and September 30, 1996, respectively.
From time to time, the Company has made advances to or was owed amounts
from certain officers of the Company. The highest aggregate amount outstanding
of advances to officers during the six months ended March 31, 1997, was $1.1
million which was the amount outstanding at March 31, 1997.
NOTE 6. REVOLVING LINE OF CREDIT
The Company obtained a $50.0 million revolving line of credit facility
with certain commercial lending institutions effective December 23, 1996, to
finance the purchase of accounts receivable under the Company's Advance Funding
Program and for general corporate purposes. The credit facility terminates on
December 20, 1999, and bears interest at a variable rate based on the prime
rate or federal funds rate as determined by a formula defined in the credit
agreement. The facility is secured by the related accounts receivable, the
stock of Billing's subsidiaries and various other assets of the Company. Under
the most restrictive terms of the credit agreement, the Company is prohibited
from paying dividends on its common stock, is required to comply with certain
financial covenants and is subject to certain limitations on the issuance of
additional secured debt. The Company was in compliance with all such covenants
at March 31, 1997. The amount borrowed by the Company and the amount available
for borrowing under this credit facility was $26.0 million and $24.0 million,
respectively, at March 31, 1997.
NOTE 7. NEW ACCOUNTING STANDARDS
In December 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of SFAS No. 125". SFAS No. 127 amends the
effective date for certain provisions of SFAS No. 125 to December 31, 1997.
Management of the Company does not anticipate the adoption of SFAS No.'s 125
and 127 will have a material impact on the Company's financial position or
results of operations.
NOTE 8. SUBSEQUENT EVENTS
In May 1997, the Company signed a letter of intent to acquire Computer
Resources Management, Inc. ("CRM"), a privately owned, direct billing company
located in San Antonio, Texas. Revenues for CRM were over $6.0 million in
calendar 1996. The Company anticipates that this acquisition will be
completed on or about June 1, 1997. The closing of this acquisition is subject
to certain conditions including, among other things, the negotiation,
execution and delivery of a definitive acquisition agreement and the
satisfactory completion of due diligence. The Company is currently evaluating
the impact this acquisition, if completed as planned, would have on the
Company's internal direct billing development efforts.
8
<PAGE> 9
ITEM 2.
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries 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"
and "intend" and words or phrases of similar import, as they relate to the
Company or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitations, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in other
filings made by the Company with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition
and results of operations of the Company for the quarter and six months ended
March 31, 1997 and 1996. It should be read in conjunction with the Interim
Condensed Consolidated Financial Statements of the Company, the notes thereto
and other financial information included elsewhere in this report, and the
Company's Annual Report on Form 10-K for the year ended September 30, 1996. For
purposes of the following discussion, references to year periods refer to the
Company's fiscal year ended September 30 and references to quarterly periods
refer to the Company's fiscal quarter ended March 31.
GENERAL
On August 2, 1996, USLD distributed to its stockholders all of the
outstanding shares of common stock of the Company (the "Distribution") which,
prior to the Distribution, was a wholly-owned subsidiary of USLD. Upon the
completion of the Distribution, Billing became an independent, publicly held
company that owns and operates the billing clearinghouse and information
management services business ("Billing Group Business") previously owned by
USLD (see "Effects of Spinoff of Billing Group Business" below).
RESULTS OF OPERATIONS
The following table presents certain items in the Company's Condensed
Consolidated Statements of Income as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenues............................................ 100.0% 100.0% 100.0% 100.0%
Cost of services.............................................. 61.9 62.5 63.2 63.9
----- ----- ----- -----
Gross profit.................................................. 38.1 37.5 36.8 36.1
Selling, general and administrative expenses.................. 10.9 11.0 10.7 10.6
Advance funding program income................................ (6.3) (6.1) (6.3) (5.9)
Advance funding program expense............................... 0.6 1.2 0.9 1.2
Depreciation and amortization expense......................... 3.0 1.9 2.4 1.9
----- ----- ----- -----
Income from operations........................................ 29.9 29.6 29.1 28.3
Other income, net............................................. 0.4 0.5 0.3 0.5
----- ----- ----- -----
Income before income taxes.................................... 30.4 30.1 29.4 28.8
Income tax expense............................................ (11.5) (11.4) (11.2) (10.9)
----- ----- ----- -----
Net income.................................................... 18.8% 18.6% 18.2% 17.8%
===== ===== ===== =====
</TABLE>
9
<PAGE> 10
Operating Revenues
The Company's revenues are primarily derived from providing billing
clearinghouse and information management services to direct dial long distance
carriers and operator services providers. Revenues are also derived from
enhanced billing services provided to companies that offer 900 services or
other non-regulated telecommunications equipment and services. Fees charged by
the Company include processing and customer service inquiry fees. Processing
fees are assessed to customers either as a fee charged for each telephone call
record or other transaction processed or as a percentage of the customer's
revenue that is submitted by the Company to local telephone companies for
billing and collection. Processing fees also include any charges assessed to
the Company by local telephone companies for billing and collection services
that are passed through to the customer. Customer service inquiry fees are
assessed to customers either as a fee charged for each record processed by the
Company or as a fee charged for each billing inquiry made by end-users.
Billing services revenues increased 1.6% to $27.4 million in the second
quarter of 1997, compared to $26.9 million in the second quarter of 1996.
Billing services revenues during the first six months of 1997 increased 9.7% to
$55.2 million from $50.3 million during the comparable period of 1996. The
revenue increases are primarily attributable to an increase in the number of
telephone call records processed and billed on behalf of direct dial long
distance customers. Revenues derived from operator services customers in the
second quarter and first six months of 1997 decreased from the comparable prior
year periods, but this trend is not expected to continue. Revenue growth from
the prior year periods was also affected by the large volume of call processing
and customer service inquiries related to a certain customer's business during
the second quarter of 1996. In this unusual instance, the transactions related
to this customer resulted in one-time revenue of approximately $1.8 million.
Telephone call record volumes (exclusive of records processed for billing
management customers) were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Direct dial long distance services .. 122.1 102.4 241.3 191.0
Operator services ................... 28.0 32.5 58.0 63.9
Enhanced billing services ........... 2.0 3.0 3.7 5.1
</TABLE>
Revenue per record for billing management customers, who have their own
billing and collection agreements with the local telephone companies, is
significantly less than revenue per record for the Company's other customers,
and thus, the volume of records processed for billing management customers is
not presented in the table above.
Cost of Services
Cost of services includes billing and collection fees charged to the
Company by local telephone companies and related transmission costs, as well as
all costs associated with the customer service organization, including staffing
expenses and costs associated with telecommunications services. Billing and
collection fees charged by the local telephone companies include fees that are
assessed for each record submitted and for each bill rendered to its end-user
customers. The Company achieves discounted billing costs due to its aggregated
volumes and can pass these discounts on to its customers.
The gross profit margin of 38.1% and 36.8% reported for the quarter and
six months ended March 31, 1997, respectively, increased from 37.5% and 36.1%
achieved in the comparable prior year periods. These increases were primarily
attributable to lower customer service and telecommunications services costs
which were offset partially by higher billing and transmission costs. The lower
customer service costs were due to decreased staffing levels resulting from the
competitive employment market and the lower telecommunications costs were
attributable to a price decrease from the Company's vendor.
10
<PAGE> 11
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses are comprised of
all selling, marketing and administrative costs incurred in direct support of
the business operations of the Company. Additionally, a portion of the expense
of certain USLD corporate functions, such as treasury, financial reporting,
investor relations, legal, payroll and management information systems has been
allocated to the Company and is reflected in its historical operating results
for the quarter and six months ended March 31, 1996.
SG&A expenses for both the second quarter of 1997 and 1996 were $3.0
million, representing 10.9% and 11.0% of revenues, respectively. SG&A expenses
for the first six months of 1997 increased slightly to $5.9 million, or 10.7 %
of revenues, from $5.4 million, or 10.6% of revenues in the comparable period
of 1996. SG&A expenses as a percentage of revenues may increase in subsequent
periods due to costs incurred to support the expected growth of the Company's
operations.
Advance Funding Program Income and Expense
Advance funding program income increased 5.5% to $1.7 million for the
second quarter of 1997 from $1.6 million for the second quarter of 1996.
Advance funding program income for the first six months of 1997 increased 17.4%
to $3.5 million from $3.0 million in the first six months of 1996. The increase
was primarily the result of financing a higher level of customer receivables
under the Company's advance funding program. The quarterly average balance of
purchased receivables was $71.1 million and $55.7 million for the six months
ended March 31, 1997 and 1996, respectively.
Advance funding program expense decreased 48.4% to $165,000 for the
second quarter of 1997 from $320,000 for the second quarter of 1996. Advance
funding program expense for the first six months of 1997 decreased 18.2% to
$489,000 from $598,000 in the comparable period of 1996. In addition to
declining from period to period, advance funding program expense declined
relative to advance funding program income due to the Company financing a
higher level of purchased receivables with internally generated funds and cost
savings realized from the more favorable terms of its new credit facility. The
Company anticipates making certain capital expenditures over the next year (see
"Liquidity and Capital Resources") and remitting certain sales taxes during the
next several quarters. Consequently, advance funding program expense may
increase in subsequent periods due to increased borrowings under the Company's
credit facility.
Income from Operations
Income from operations in the second quarter of 1997 increased to $8.2
million, or 29.9% of revenues, from $8.0 million, or 29.6% of revenues, in the
second quarter of 1996. Income from operations in the first six months of 1997
increased to $16.1 million, or 29.1% of revenues, from $14.2 million, or 28.3%
of revenues, in the first six months of 1996. Income from operations as a
percentage of revenues improved due to a higher gross profit margin and higher
net advance funding program income, as discussed above, but this improvement
was partially offset by higher depreciation and amortization expense as a
percentage of revenue. Depreciation and amortization expense increased from the
prior year periods as a result of purchases of furniture and equipment to
support the growth of the Company.
11
<PAGE> 12
EFFECTS OF SPINOFF OF BILLING GROUP BUSINESS
The unaudited Condensed Consolidated Statements of Income included in
this report reflect the operations of the Company for the quarters and six
months ended March 31, 1997 and 1996. Included below is supplemental unaudited
consolidated pro forma financial information that management believes is
important to provide an understanding of the results of operations of the
Company on a stand-alone basis. Pro Forma Condensed Consolidated Statements of
Income are presented below on a quarterly and annual basis for 1996. These Pro
Forma Condensed Consolidated Statements of Income are based on the historical
statements of the periods presented adjusted to reflect the items discussed in
the accompanying notes to the pro forma financial statements. The Pro Forma
Condensed Consolidated Statements of Income give effect to the Distribution as
if it had occurred at the beginning of 1996. The number of weighted average
shares outstanding used in the calculation of the pro forma per share data
gives effect to the shares assumed to be issued had the Distribution occurred
at the beginning of each period presented.
The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes to the pro forma financial statements and with the Company's
historical financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth herein
and in the Post Effective Amendment No. 2 to the Company's Registration
Statement on Form 10/A dated August 1, 1996, and the Company's Annual Report on
Form 10-K for the year ended September 30, 1996. The pro forma financial
statements should not be considered indicative of the operating results which
the Company will achieve in the future because, among other things, these
statements are based on historical rather than prospective information and
include certain assumptions which are subject to change.
The unaudited Pro Forma Condensed Consolidated Statements of Income
reflect, in management's opinion, all adjustments necessary to fairly state the
pro forma results of operations for the periods presented to make the unaudited
pro forma statements not misleading.
12
<PAGE> 13
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------- YEAR ENDED
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, SEPT. 30,
1995 1996 1996 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues ........................................... $ 23,354 $ 26,947 $ 25,729 $ 27,854 $ 103,884
Cost of services ............................................. 15,306 16,839 16,640 18,083 66,868
--------- --------- --------- --------- ---------
Gross profit ................................................ 8,048 10,108 9,089 9,771 37,016
Selling, general and administrative expenses ................. 2,392 2,964 3,239 2,850 11,445
Advance funding program income ............................... (1,324) (1,644) (1,805) (1,791) (6,564)
Advance funding program expense (A) .......................... 696 738 640 686 2,760
Depreciation and amortization expense ........................ 439 501 567 620 2,127
--------- --------- --------- --------- ---------
Income from operations ...................................... 5,845 7,549 6,448 7,406 27,248
Other income (expense), net .................................. 104 132 96 (180) 152
--------- --------- --------- --------- ---------
Income before income taxes ................................... 5,949 7,681 6,544 7,226 27,400
Income tax expense (B) ....................................... (2,260) (2,919) (2,486) (2,746) (10,411)
--------- --------- --------- --------- ---------
Net income ................................................... $ 3,689 $ 4,762 $ 4,058 $ 4,480 $ 16,989
========= ========= ========= ========= =========
Net income per common share .................................. $ 0.25 $ 0.31 $ 0.26 $ 0.28 $ 1.10
Weighted average common shares and common share equivalents
outstanding ................................................ 14,853 15,189 15,715 15,783 15,385
</TABLE>
Notes to unaudited pro forma condensed consolidated statements of income:
(A) Reflects an adjustment to increase interest expense for the assumed
borrowings for the cash transfer made to USLD of $11,713,000 in accordance
with the terms of the Distribution Agreement and cash payments for direct
costs incurred in connection with the Distribution of approximately
$9,200,000. Interest expense was calculated at a rate of 8.0% per annum.
(B) Reflects related income tax effect of the interest expense adjustment in
note (A).
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $29.9 million at March 31, 1997
from $34.1 million at September 30, 1996. The Company's working capital
position and current ratio increased to $20.0 million and 1.2:1 at March 31,
1997 from $13.5 million and 1.1:1 at September 30, 1996, respectively. Net cash
provided by operating activities was $6.3 million and $6.9 million in the
first six months of 1997 and 1996, respectively.
In December 1996, the Company obtained a new $50 million revolving line
of credit facility with certain lenders to draw upon to advance funds to its
billing customers prior to collection of the funds from the local telephone
companies and for general corporate purposes. This new credit facility
terminates on December 20, 1999, and provides the Company with more favorable
terms than those of the Company's previous credit facility. Borrowings under
the credit facility are limited to a portion of the company's eligible
receivables. Management believes that the capacity under the revolving credit
facility will be sufficient to fund advances to its billing customers for the
foreseeable future. The amount borrowed by the Company under its credit
facility to finance the advance funding program was $26.0 million and $19.0
million at March 31, 1997 and September 30, 1996,
respectively. At March 31, 1997, the amount available under the Company's
receivable financing facility was $24.0 million.
In addition to the revolving line of credit facility described above,
the Company is obligated as a guarantor of USLD's equipment financing
agreements with certain lenders. The aggregate unpaid principal amount of
indebtedness under such agreements at March 31, 1997 was approximately $8.5
million, due in varying amounts through October 2000. The Company is also
obligated under its own equipment financing agreements. Under certain of the
credit agreements, the Company is prohibited from paying dividends on its
common stock, is required to comply with certain financial covenants and is
subject to certain limitations on the issuance of additional secured debt.
Cross-default provisions of certain of the Company's equipment loans may place
the Company in default of such loans in the event that USLD defaults under the
equipment finance agreements that the Company has guaranteed. The Company was
in compliance with all required covenants at March 31, 1997 and September 30,
1996.
Capital expenditures amounted to approximately $10.6 million in the
first six months of 1997 and related primarily to purchases of computer
equipment and software. During the first six months of 1997, the Company
financed approximately $2.0 million of equipment through term debt agreements
with certain lenders. The Company plans to incur on-going development costs not
to exceed approximately $10 million over the next twelve months related to
information systems that will enable it to offer "direct billing" and "invoice
ready" services. These expenditures, if made, will be focused in the areas of
software development, computer hardware and local telephone company agreements.
In connection with this development effort, the Company is currently discussing
additional local telephone company agreements with the local telephone
companies for the implementation of "invoice ready" billing services. The
Company believes that it will be able to fund expenditures for the new billing
services with internally generated funds and borrowings, but there can be no
assurance that such funds will be available or will be invested in these
projects. As of March 31, 1997, the Company had expended approximately $6.6
million in support of these projects and a total of approximately $15.6 million
in capital expenditures since becoming a separate public company.
In May 1997, the Company signed a letter of intent, the terms of which
have not yet been disclosed, to acquire Computer Resources Management, Inc.
("CRM"), a privately owned, direct billing company located in San Antonio,
Texas. Revenues for CRM were over $6.0 million in calendar 1996. The Company
anticipates that this acquisition will be completed on or about June 1, 1997.
The closing of this acquisition is subject to certain conditions including,
among other things, the negotiation, execution and delivery of a definitive
acquisition agreement and the satisfactory completion of due diligence. The
Company is currently evaluating the impact this acquisition, if completed as
planned, would have on the Company's internal direct billing development
efforts.
The Company's operating cash requirements consist principally of
working capital requirements, requirements under its advance funding program,
scheduled payments of principal on its outstanding indebtedness and capital
expenditures. The Company believes that it has the ability to continue to
secure long-term equipment financing and that this ability, combined with cash
flows generated from operations and periodic borrowings under its receivable
financing facility, will be sufficient to fund capital expenditures, advance
funding requirements, working capital needs and debt repayment requirements for
the foreseeable future.
14
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party would have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on February 20, 1997, the
following matters were adopted by the margins indicated:
1. To elect two directors to serve until the 2000 Annual Meeting of
Stockholders.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
James E. Sowell 12,615,599 129,051
Thomas G. Loeffler 12,610,599 134,051
</TABLE>
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending September 30, 1997.
<TABLE>
<S> <C>
For: 12,703,817
Against: 11,250
Abstain: 29,885
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation
by reference to a previously filed document, such document is
identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION
11.1 Computation of Earnings Per Share (filed herewith)
27.1 Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K:
None.
ITEMS 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BILLING INFORMATION CONCEPTS CORP.
(Registrant)
Date: May 12, 1997 By: /s/ KELLY E. SIMMONS
----------------------------------
Kelly E. Simmons
Senior Vice President
Chief Financial Officer
(Duly authorized and principal
financial officer)
<PAGE> 17
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
11.1 Computation of Earnings Per Share (filed herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 11.1
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION:
Net income applicable to common stock ....................................... $ 5,157 $10,068
======= =======
Shares:
Weighted average number of shares of common stock outstanding .............. 15,247 15,173
Weighted average common stock equivalents applicable to stock options and
warrants ............................................................... 997 1,047
------- -------
Weighted average shares used for computation ............................... 16,244 16,220
======= =======
Net income per common share ................................................ $ 0.32 $ 0.62
FULLY DILUTED EARNINGS PER SHARE CALCULATION:
Net income applicable to common stock ....................................... $ 5,157 $10,068
Shares:
Weighted average number of shares of common stock outstanding .............. 15,247 15,173
Weighted average common stock equivalents applicable to stock options and
warrants ............................................................... 997 1,047
------- -------
Weighted average shares used for computation ............................... 16,244 16,220
======= =======
Net income per common share (a) ............................................ $ 0.32 $ 0.62
</TABLE>
Note: Earnings per common share is presented above for the three and six
months ended March 31, 1997 only as Billing Information Concepts Corp.
had no publicly held common shares outstanding prior to August 2, 1996.
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR BILLING
INFORMATION CONCEPTS CORPORATION AND SUBSIDIARIES AS OF AND FOR THE SIX MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 29,873
<SECURITIES> 0
<RECEIVABLES> 22,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 134,807
<PP&E> 25,861
<DEPRECIATION> 3,667
<TOTAL-ASSETS> 159,109
<CURRENT-LIABILITIES> 114,847
<BONDS> 5,876
0
0
<COMMON> 153
<OTHER-SE> 38,233
<TOTAL-LIABILITY-AND-EQUITY> 159,109
<SALES> 0
<TOTAL-REVENUES> 55,200
<CGS> 0
<TOTAL-COSTS> 34,894
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 16,239
<INCOME-TAX> 6,171
<INCOME-CONTINUING> 10,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,068
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
