BEDFORD, Mass., July 28 /PRNewswire-FirstCall/ -- Boston
Communications Group, Inc, (NASDAQ:BCGI) today announced that its
consolidated GAAP net income for the second quarter ended June 30,
2006 totaled $24.5 million or $1.37 per share, primarily driven by
a reduction in the estimated loss of $18.5 million and $8.2 million
in related tax benefits as a result of the settlement of the
Freedom Wireless litigation previously announced on July 21, 2006.
On a non-GAAP basis, excluding the reduction in the loss accrual
and certain other items, the Company would have reported a net loss
of $855,000, or $0.05 per share. The consolidated GAAP net income
for the second quarter of 2006 compares with net loss of $17.9
million, or $1.01 per share, for the second quarter of 2005 and
GAAP net income of $907,000, or $0.05 per share, for the first
quarter of 2006. On a non-GAAP basis, excluding a $28.3 million
non-cash charge recorded in the second quarter of 2005 and related
legal expenses in connection with the Freedom Wireless lawsuit, the
Company would have reported net income of $3.8 million, or $0.21
per share, for the three months ended June 30, 2005. Total revenues
for the second quarter of 2006 decreased 13% to $22.2 million from
$25.6 million for the second quarter of 2005 and decreased 10% from
$24.7 million for the first quarter of 2006. Total revenues for the
six months ended June 30, 2006 decreased 10% to $47.0 million from
$52.0 million for the six months ended June 30, 2005. As of June
30, 2006, bcgi had 4.01 million subscribers on its Real-Time
Billing platform, 186,000 higher than June 30, 2005 and 265,000
higher than March 31, 2006. The subscriber increases were driven by
growth from a customer who receives lower contractual pricing and
customary volume discounts and who became a larger proportion of
Real-Time Billing revenues. The growth from this carrier more than
offset the expected decrease in subscribers from Verizon Wireless
and Alltel Corporation, who have completely migrated off the
Company's Real-Time Billing platform, and conversions from Cingular
Wireless, who continues to migrate off the Company's Real-Time
billing platform. For the quarter ended June 30, 2006, bcgi's
average monthly revenue per user, or subscriber, (ARPU) on its
Real-Time Billing platform was $1.64, 20% lower than ARPU of $2.05
for the second quarter of 2005 and 10% lower than ARPU of $1.83 for
the first quarter of 2006. These declines in ARPU resulted from
volume discounts and the change in the mix of bcgi's carrier
customers noted above. Cost of revenues, engineering, research and
development, sales and marketing and general and administrative
expenses all increased for the second quarter of 2006 compared to
the second quarter of 2005. Cost of revenues and engineering,
research and development also increased compared to the first
quarter of 2006, whereas sales and marketing and general and
administrative expenses remained relatively consistent with the
first quarter of 2006. These increases both sequentially and
compared to the same period in the prior year resulted principally
from increased staffing and labor costs, in addition to other costs
the Company incurred principally to continue to execute on its
diversification initiatives and invest resources in its global
sales strategy. General and administrative legal and related
expenses for the Freedom Wireless lawsuit for the quarter ended
June 30, 2006 decreased compared to the same period in the prior
year principally due to higher costs for the Freedom Wireless trial
that occurred in 2005. Interest income increased during the quarter
ended June 30, 2006 compared to prior periods primarily due to
one-time interest from income tax refunds and from the repayment of
interest on a note receivable. Cash, short-term investments, and
restricted cash increased $11.1 million from $70.3 million as of
March 31, 2006 to $81.4 million as of June 30, 2006. This increase
was primarily due to the timing of accounts receivable receipts
which caused a decrease in average days sales outstanding to 57
days as of June 30, 2006, down from 86 days at March 31, 2006.
Freedom Wireless Accounting Treatment As the Company previously
announced on July 21, 2006, the terms of the settlement and license
agreements have been finalized, and the settlement is conditioned
upon the entry of orders vacating certain orders and judgments in
the U.S. District Court for the District of Massachusetts. With
respect to the accounting treatment of bcgi's $55.3 million cash
payment and the other obligations related to the Settlement and
License Agreements, bcgi had previously accrued a $64.3 million
estimated loss related to the Freedom litigation. Based on the
amount of settlement related to past damages, bcgi reversed a
portion of the previously recorded loss, resulting in a net gain to
operating income for the quarter ended June 30, 2006. The
accounting effect of the settlement is summarized as follows:
Reconciliation of Freedom Wireless accounting: Accrued estimated
loss from litigation at March 31, 2006 $64,300,000 Amount of cash
to be paid at settlement (55,300,000) Estimated value ascribed to
contingent license payment (3,100,000) Royalty prepayment
12,600,000 Net reduction in estimated loss from litigation for the
period ended June 30, 2006 $18,500,000 The royalty prepayment of
$12.6 million will be recorded as an asset and is expected to be
amortized as expense over the period from July 2006 through
approximately February 2007. The contingent license payment equal
to five percent of any increase in bcgi's average market
capitalization for the six months ending June 30, 2007, compared to
the six months ended June 30, 2006, was valued at $3.1 million to
reflect the estimated market value of this contingency. This
contingency, which is an estimate and should not be relied on for
purposes of valuing bcgi's future market capitalization, has been
recorded as part of the settlement expense as of June 30, 2006, and
will be marked to market each quarter thereafter. The settlement is
also expected to result in a refund of taxes paid in prior years
for which an estimated income tax benefit of $8.2 million was
recorded as of June 30, 2006. Outlook The Company anticipates a
loss on a GAAP basis of approximately $0.47 to $0.53 per share for
the quarter ending September 30, 2006, which includes approximately
$4.7 million, or $0.26 per share of estimated Freedom Wireless
royalties from the royalty prepayment and excludes any income tax
benefit for the quarter, as well as any potential fluctuation in
the valuation of the contingent license payment. These expectations
are based primarily on estimated revenues of $19 to $20 million for
the quarter ending September 30, 2006. The revenue guidance
includes a quarterly sequential price decrease of approximately 20%
for the Company's largest carrier customer, as reflected in their
contract extension disclosed in the Company's 8-K filed on July 21,
2006. In addition, the Company estimates its cash and short-term
investments balance to range between $17 and $20 million as of
September 30, 2006, reflecting the settlement payment and assuming
a target average days sales outstanding of approximately 70 days.
The Company is continuing to invest in its customer and product
diversification strategy which includes support of its bcgi Access
Management, bcgi Payment and Voyager Billing products and expansion
into new domestic and international wireless markets, including the
developing MVNO market. These strategic initiatives are expected to
result in third quarter spending at levels relatively consistent
with the second quarter of 2006. Additionally, the Freedom Wireless
royalty expenses (net of reimbursements) expected to be incurred
subsequent to March 1, 2007 are not expected to be material to the
Company's income statement, since the Company anticipates that
existing and future pricing will absorb much of the cost of the
royalties. "The resolution of the Freedom litigation allows us to
better focus on competing in the marketplace and achieve our
long-term growth strategy," said E.Y. Snowden, bcgi president and
CEO. "With our Freedom Wireless license and bcgi's best in class,
3GPP-compliant, Intelligent Network-based Real-Time Billing
platform, we believe we are well positioned to offer our suite of
solutions to the wireless industry." Update on Option Grants As
previously announced, Staff of the Securities and Exchange
Commission contacted bcgi by telephone regarding an informal
inquiry relating to certain option grants made between 1998 and
2002. The Board of Directors has retained outside counsel which,
along with bcgi, has begun to review bcgi's historical option
grants practices. The results of that review will be reported by
outside counsel to a Special Committee of the Board consisting of
outside directors. The review is still ongoing and the Special
Committee is continuing to review these matters. Based on the
investigation conducted to date, the actual measurement dates for
accounting purposes for certain stock option grants during prior
periods may differ from the recorded grant dates for such awards.
As a result, the Company may need to record additional non- cash
charges for stock-based compensation expense related to those prior
periods, however, the impact of any such compensation charges, if
any, for any relevant fiscal period has not been determined. Use of
Non-GAAP Financial Measures The non-GAAP operating results included
in this release are non-GAAP financial measures under the rules of
the Securities and Exchange Commission. In both the three and six
months ended June 30, 2006, these results exclude $7.7 million and
$9.1 million, respectively in one-time income tax benefit and $17.7
million and $16.5 million, respectively for adjustments of legal
and related costs to defend and settle the Freedom Wireless
litigation. The Company included this information because the
Company believes this information is an appropriate measure for
evaluating the Company's operating performance and will assist
investors in understanding the Company's results of operations on a
comparative basis. The Company uses this non-GAAP information
internally to help the Company's management more accurately assess
the ongoing nature of bcgi's operations and measure the Company's
performance on a comparative basis. This non-GAAP information
supplements the GAAP financial information contained herein, and is
not intended to represent a measure of performance in accordance
with disclosures prepared in accordance with GAAP. Conference Call
The Company will be holding a conference call and web cast at
8:30AM ET on Friday, July 28, 2006 to discuss results for the
period ended June 30, 2006 and management's outlook. The Company's
President and CEO, E.Y. Snowden, and Chief Financial Officer, Karen
A. Walker, will host the call. Parties interested in listening to
the call should dial 1-800-423-5972 at least 10 minutes prior to
the start of the call. For those unable to participate at the
designated time, a replay will be available for seven days
following the call via telephone at 1-800-642-1687 (conf id
3457612) and will be available for 90 days on the web at
http://www.bcgi.net/. ABOUT THE COMPANY bcgi delivers innovative
products and services that enable mobile operators and MVNOs
worldwide to differentiate their offerings and increase market
penetration while reducing costs. Founded in 1988, bcgi is a leader
in identifying and addressing new market needs with proven
solutions, including prepaid and postpaid billing, payments and
access management. For more information, visit
http://www.bcgi.net/. CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS This press release contains, in addition
to historical information, forward-looking statements that involve
risks and uncertainties, including statements regarding revenues
and earnings estimates, cash and short-term investments balance,
third quarter spending being at levels consistent with the second
quarter of 2006, the time period covered by the royalty prepayment
to Freedom Wireless, future pricing including the cost of the
royalties, the estimated valuation of the contingent license
payment, the impact on financial statements as a result of the
stock option review, the timing of customer migrations, estimates
of and expectations regarding new product offerings and expansion
into new markets. Such statements are based on management's current
expectations and are subject to a number of uncertainties and risks
that could cause actual results to differ materially from those
described in the forward- looking statements. Among the important
factors that would cause actual results to differ materially from
those indicated by such forward looking statements are the loss of
a customer or certain of their markets, the timing and entry of
orders vacating certain orders and judgments related to the Freedom
Wireless settlement in the U.S. District Court for the District of
Massachusetts and the Courts ruling on those orders, the growth of
bcgi's carrier customers during the prepayment period, a change in
the revenues from the Company's largest customer which represented
77% of the Company's consolidated revenues for the three months
ended June 30, 2006, the timing of cash receipts, fluctuations in
the valuation of the contingent license payment, quarterly
fluctuations in the Company's stock price and the Company's average
market capitalization for the six months ending June 30, 2007,
unfavorable results from the SEC option grant inquiry which, among
other things, could result in recording additional non-cash charges
for stock-based compensation expense related to prior periods, as
well as the other factors that may affect future operating results
detailed in bcgi's Form 10-Q for the three months ended March 31,
2006 filed with the Securities and Exchange Commission. BOSTON
COMMUNICATIONS GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited and in thousands, except per share amounts)
Three Months Ended Six Months Ended 6/30/06 3/31/06 6/30/05 6/30/06
6/30/05 Revenues: Real-time billing $19,196 $21,646 $23,348 $40,842
$47,572 Other 3,043 3,071 2,267 6,114 4,395 $22,239 $24,717 $
25,615 $46,956 $51,967 Expenses: Cost of revenues (1) 7,242 7,172
6,347 14,414 12,574 Engineering, research and development 4,992
4,622 3,599 9,614 7,628 Sales and marketing 3,204 3,216 2,277 6,420
4,713 General and administrative 4,080 3,914 3,810 7,994 7,555
General and administrative - legal (2) 796 1,230 4,319 2,026 6,529
(Gain)/loss from litigation (18,500) - 24,000 (18,500) 24,000
Depreciation and amortization 5,350 5,318 5,204 10,668 10,758 Total
operating expenses 7,164 25,472 49,556 32,636 73,757 Operating
income (loss) 15,075 (755) (23,941) 14,320 (21,790) Interest income
1,251 687 408 1,938 808 Income (loss) before income taxes 16,326
(68) (23,533) 16,258 (20,982) Benefit for income taxes (8,190)
(975) (5,671) (9,165) (4,753) Net income (loss) $24,516 $907
(17,862) $25,423 $(16,229) Basic Net Income Per Share: Net income
(loss) $1.37 $0.05 $(1.01) $1.43 $(0.92) Weighted average common
shares outstanding 17,876 17,775 17,641 17,826 17,622 Diluted Net
Income Per Share: Net income (loss) $1.37 $0.05 $(1.01) $1.43
(0.92) Weighted average common shares outstanding 17,927 17,780
17,641 17,837 17,622 Notes to Condensed Consolidated Statements of
Operations: (1) Exclusive of depreciation and amortization, which
is shown separately. (2) General and administrative - legal
expenses consist primarily of legal and related fees incurred in
the defense and settlement of the patent infringement suits brought
by Freedom Wireless. CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands) June 30, December 31, 2006 2005 ASSETS
Current assets: Cash and short-term investments $38,979 $39,350
Restricted cash 42,403 41,466 Accounts receivable, net of allowance
for billing adjustments and doubtful accounts of $1,370 in 2006 and
$949 in 2005 12,280 14,830 Tax refund receivable 8,190 - Prepaid
expenses and other assets 3,408 3,443 Total current assets 105,260
99,089 Property and equipment, net 48,250 53,283 Goodwill and other
assets 22,529 22,919 Total assets $176,039 $175,291 LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and
accrued expenses $12,863 $20,177 Loss from litigation 42,700 64,300
Total current liabilities 55,563 84,477 Non-current liabilities:
Accrued pension liability 5,044 4,468 Contingent payment from
litigation 3,100 - Total non-current liabilities 8,144 4,468
Shareholders' equity: Common stock and additional paid-in capital
106,916 106,409 Accumulated earnings (deficit) 5,416 (20,063) Total
shareholders' equity 112,332 86,346 Total liabilities and
shareholders' equity $176,039 $175,291 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited and in thousands) Six months
ended June 30, 2006 2005 OPERATING ACTIVITIES Net income (loss)
$25,423 $(16,229) Adjustments to reconcile net income to net cash
used in operations: Depreciation and amortization 10,668 10,758
Deferred income taxes 17 (4,899) Stock compensation expense 324 --
Changes in operating assets and liabilities: Accounts receivable,
net 2,572 (4,663) Prepaid expenses and other assets (18) (1,705)
(Gain)/loss from litigation (18,500) 24,000 Income taxes receivable
(10,085) - Accounts payable, accrued expenses and deferred revenue
(4,785) (4,799) Other non-current liabilities 576 - Net cash used
in operations INVESTING ACTIVITIES 6,191 2,463 Restricted cash
(937) -- Payment of earnout of acquired business (671) (7,242)
Purchases of long-term investments, net of sales (16) (1,955) Sales
of short-term investments, net of purchases (9,497) 8,125 Increase
in other investments 41 - Purchase of property and equipment
(5,177) (9,350) Net cash used in investing activities (16,257)
(10,422) FINANCING ACTIVITIES Proceeds from employee stock purchase
plan 198 375 Net cash provided by financing activities 198 375
Decrease in cash and cash equivalents (9,867) (7,584) Cash and cash
equivalents at beginning of period 14,601 9,467 Cash and cash
equivalents at end of period $4,734 $1,883 Non-GAAP Statements of
Income Impact of Non-GAAP Adjustments on Reported Net Income
(Unaudited and in thousands, except for per share amounts) Three
Months ended June 30, 2006 Non-GAAP As GAAP Adjustments Adjusted
Net revenues: $22,239 $- $22,239 Expenses: Cost of revenues 7,242 -
7,242 Engineering, research and development 4,992 - 4,992 Sales and
marketing 3,204 - 3,204 General and administrative 4,080 - 4,080
General and administrative - legal(1) 796 (796) - (Gain)/loss from
litigation (2) (18,500) 18,500 - Depreciation and amortization
5,350 - 5,350 Total operating expenses 7,164 17,704 24,868
Operating income (loss) 15,075 (17,704) (2,629) Interest income
1,251 - 1,251 Income from before income taxes 16,326 (17,704)
(1,378) Provision /(benefit) for income taxes (3) (8,190) 7,667
(523) Net income (loss) $24,516 $(25,371) $(855) Basic Net Income
Per Share: Net income (loss) $1.37 $(0.05) Weighted average common
shares outstanding 17,876 17,876 Diluted Net Income Per Share: Net
income (loss) $1.37 $(0.05) Weighted average common shares
outstanding 17,927 17,876 (1) General and administrative - legal
expenses consist primarily of legal and related fees incurred as a
result of the defense and settlement of the patent infringement
suits brought by Freedom Wireless. (2) Amount represents the
estimated loss contingency for the Freedom Wireless lawsuit,
excluding legal charges. (3) Amount represents the adjustment
necessary to adjust the GAAP tax rate, which includes a valuation
allowance for all deferred tax assets and for all state net
operating loss carryforwards, to the Company's annual effective tax
rate before this charge or approximately 38%. Non-GAAP Statements
of Operations Impact of Non-GAAP Adjustments on Reported Net Income
(Loss) (Unaudited and in thousands, except for per share amounts)
Three Months ended June 30,2005 Non-GAAP GAAP Adjustments As
Adjusted Net revenues: $25,615 $-- $25,615 Expenses: Cost of
revenues 6,347 -- 6,347 Engineering, research and development 3,599
-- 3,599 Sales and marketing 2,277 -- 2,277 General and
administrative 3,810 -- 3,810 General and administrative - legal
(1) 4,319 (4,319) -- (Gain)/loss from litigation (2) 24,000
(24,000) -- Depreciation and amortization 5,204 -- 5,204 Total
operating expenses 49,556 (28,319) 21,237 Operating income (loss)
(23,941) 28,319 4,378 Interest income 408 -- 408 Income (loss) from
continuing operations before income taxes (23,533) 28,319 4,786
Provision/(benefit) for income taxes (3) (5,671) 6,676 1,005 Net
income (loss) (17,862) $21,643 $3,781 Basic Net Income (Loss) Per
Share: Net income (loss) $(1.01) $0.21 Weighted average common
shares outstanding 17,641 17,641 Diluted Net Income (Loss) Per
Share: Net income (loss) $(1.01) $0.21 Weighted average common
shares outstanding 17,641 17,644 (1) General and administrative -
legal expenses consist primarily of legal and related fees incurred
as a result of the defense and settlement of the patent
infringement suits brought by Freedom Wireless. (2) Amount
represents the estimated loss contingency for the Freedom Wireless
lawsuit, excluding legal charges. (3) Amount represents the
adjustment necessary to adjust the GAAP tax rate, which includes a
valuation allowance for all deferred tax assets and for all state
net operating loss carryforwards, to the Company's annual effective
tax rate before this charge or approximately 21%. Non-GAAP
Statements of Income Impact of Non-GAAP Adjustments on Reported Net
Income (Unaudited and in thousands, except for per share amounts)
Six Months ended June 30, 2006 Non-GAAP GAAP Adjustments As
Adjusted Net revenues: $46,956 $-- $46,956 Expenses: Cost of
revenues 14,414 - 14,414 Engineering, research and development
9,614 - 9,614 Sales and marketing 6,420 - 6,420 General and
administrative 7,994 - 7,994 General and administrative - legal (1)
2,026 (2,026) -- (Gain)/loss from litigation (2) (18,500) 18,500 -
Depreciation and amortization 10,668 -- 10,668 Total operating
expenses 32,636 16,474 49,110 Operating income (loss) 14,320
(16,474) (2,154) Interest income 1,938 -- 1,938 Income from before
income taxes 16,258 (16,474) (216) Provision/(benefit) for income
taxes (3) (9,165) 9,083 (82) Net income $25,423 $(25,557) $(134)
Basic Net Income Per Share: Net income (loss) $1.43 $(0.01)
Weighted average common shares outstanding 17,826 17,826 Diluted
Net Income Per Share: Net income (loss) $1.43 $(0.01) Weighted
average common shares outstanding 17,837 17,826 (1) General and
administrative - legal expenses consist primarily of legal and
related fees incurred as a result of the defense and settlement of
the patent infringement suits brought by Freedom Wireless. (2)
Amount represents the estimated loss contingency for the Freedom
Wireless lawsuit, excluding legal charges. (3) Amount represents
the adjustment necessary to adjust the GAAP tax rate, which
includes a valuation allowance for all deferred tax assets and for
all state net operating loss carryforwards, to the Company's annual
effective tax rate before this charge or approximately 38%.
Non-GAAP Statements of Operations Impact of Non-GAAP Adjustments on
Reported Net Income (Loss) (Unaudited and in thousands, except for
per share amounts) Six Months ended June 30,2005 Non-GAAP GAAP
Adjustments As Adjusted Net revenues: $51,967 $-- $51,967 Expenses:
Cost of revenues 12,574 -- 12,574 Engineering, research and
development 7,628 -- 7,628 Sales and marketing 4,713 -- 4,713
General and administrative 7,555 -- 7,555 General and
administrative - legal (1) 6,529 (6,529) -- (Gain)/loss from
lawsuit (2) 24,000 (24,000) -- Depreciation and amortization 10,758
-- 10,758 Total operating expenses 73,757 (30,529) 43,228 Operating
income (loss) (21,790) 30,529 8,739 Interest income 808 -- 808
Income (loss) from continuing operations before income taxes
(20,982) 30,529 9,547 Provision/(benefit) for income taxes (3)
(4,753) 6,758 2,005 Net income (loss) $(16,229) $23,771 $7,542
Basic Net Income (Loss) Per Share: Net income (loss) $(0.92) $0.43
Weighted average common shares outstanding 17,622 17,622 Diluted
Net Income (Loss) Per Share: Net income (loss) $(0.92) $0.43
Weighted average common shares outstanding 17,622 17,654 (1)
General and administrative - legal expenses consist primarily of
legal and related fees incurred as a result of the defense and
settlement of the patent infringement suits brought by Freedom
Wireless. (2) Amount represents the estimated loss contingency for
the Freedom Wireless lawsuit, excluding legal charges. (3) Amount
represents the adjustment necessary to adjust the GAAP tax rate,
which includes a valuation allowance for all deferred tax assets
and for all state net operating loss carryforwards, to the
Company's annual effective tax rate before this charge or
approximately 21%. DATASOURCE: Boston Communications Group, Inc
CONTACT: Email inquiries for Boston Communications Group, Inc, ; or
Joe Calabrese of Financial Relations Board, Investor Inquiries,
+1-212-827-3772 Web site: http://www.bcgi.net/
Copyright
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