Boston Communications (BCGI) 8-K Boston Communications Group Reports

EXHIBIT 99.1

BOSTON COMMUNICATIONS GROUP REPORTS

THIRD QUARTER 2004 RESULTS

Woburn, MA – October 20, 2004 - Boston Communications Group, Inc. (Nasdaq: BCGI) today announced that its consolidated net income for the third quarter ended September 30, 2004 was $4.2 million, or $0.24 per share, at the high end of the Company’s guidance provided on July 21, 2004. This was principally due to lower than expected operating costs and legal costs associated with the Freedom Wireless proceedings. Third quarter net income represented a 3% decrease over net income of $4.3 million, or $0.23 per share, for the third quarter of 2003 and a 17% decrease from net income of $5.0 million, or $0.27 per share, for the second quarter of 2004. Total revenues for the third quarter were $27.0 million, increasing 2% from $26.6 million in the third quarter of 2003 and decreasing 2% from $27.7 million in the second quarter of 2004.

Net income for the nine months ended September 30, 2004 totaled $13.2 million, or $0.72 per share. This net income represented a 13% increase over net income of $11.7 million, or $0.62 per share, for the nine months ended September 30, 2003. Total revenues for the nine months ended September 30, 2004 increased 14% to $81.9 million from $74.2 million in the nine months ended September 30, 2003.

Cash and short-term investments increased $5.8 million during the third quarter to a record $70.9 million as of September 30, 2004. This net increase takes into account $3.2 million spent during the quarter to repurchase shares of the Company’s common stock underbcgi’s previously announced program.

Billing and Transaction Processing Services (BTPS) revenues, which are comprised of revenues frombcgi Prepaid Wireless,bcgi Voyager Billing and Customer Care, andbcgi Payment Services businesses were $25.6 million in the third quarter of 2004, representing a 4% increase over the third quarter of 2003 and a 5% decrease from the second quarter of 2004. Gross margin on BTPS revenues was 76% compared to 77% in the third quarter of 2003 and 78% in the second quarter of 2004. The sequential decrease in 2004 gross margin was primarily driven by lower revenues and ongoing prudent investments in new product offerings, features and enabling technologies. While total revenues were lower sequentially, revenues from customers other than the Company’s two largest carriers increased 19% over the second quarter of 2004.

As of September 30, 2004,bcgi had 3.91 million subscribers, 9% higher than September 30, 2003 although Prepaid Wireless net subscribers decreased by 157,000 from June 30, 2004. Total average billed minutes of use per subscriber per month was 108 minutes, a 4% decrease from the third quarter of 2003 and 9% lower than the three months ended June 30, 2004. These trends reflect declines in the Company’s gross additions from its two largest carrier customers.

Outlook

The Company anticipates GAAP earnings will approximate $0.14 to $0.18 per share for the fourth quarter of 2004, which should yield annual earnings of $0.86 to $0.90 per share for 2004. Earnings estimates reflect the expectation that Verizon Wireless will begin to convert subscribers frombcgi’s platform to its internal platform over the period beginning in October 2004 and ending by the third quarter of 2005. In addition, the Company anticipates it will continue to have fewer gross additions from Cingular Wireless as their GSM prepaid programs, whichbcgi does not support, are favored over their TDMA programs. The Company also expects to continue to invest in its diversification strategy which includes support for its new Mobile Guardian product and continued expansion into the regional and mobile virtual network operator (MVNO) wireless markets, among other initiatives. The Company’s fourth quarter guidance includes approximately $0.02 to $0.03 per share in estimated legal costs, primarily to defend the Freedom Wireless lawsuit.

“Our continued deliberate and sensible investment in our two most critical assets—our leading edge real-time transaction processing platform and our bright and talented employees—have enabledbcgito make further successful advances in reducing our revenue concentration and in positioning ourselves to achieve our long-term growth strategy,” said E.Y. Snowden, president and chief executive officer. “This focus not only supports our ability to provide sophisticated services to our existing carrier customers, but positions us well to expand our offerings to the broader wireless marketplace.”

Conference Call

The Company will hold a conference call and Webcast at 5:00PM Eastern Standard Time on Wednesday, October 20th, 2004 to discuss results for the period ended September 30, 2004 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 one week following the call via telephone at 1-800-642-1687 (conf id 1315556) and for 90 days on the web at www.bcgi.net.

ABOUT THE COMPANY

Boston Communications Group, Inc. (NASDAQ: BCGI), an S&P Small Cap 600 Index company and Russell 2000 Index company, is a leader in transaction processing solutions for real-time wireless subscriber management, payment services, billing and customer care. Through these solutions,bcgi delivers prepaid and postpaid billing, wireless account recharge and mobile commerce. Founded in 1988,bcgi provides solutions to wireless operators worldwide through a combination of its industry-leading, proprietary software applications, world-class infrastructure and data centers, expertise in telecommunications platform integration, and flexible implementation models. Please visit thebcgi Web site athttp://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 earnings per share estimates, estimates of future legal expenses 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, specifically, Verizon Wireless, Cingular Wireless and Nextel Communications, who represented 41%, 23% and 14%, respectively, of the Company’s consolidated revenues for the three months ended September 30, 2004, or greater than expected pricing reductions from major carrier customers, network outages that can cause reductions in revenue due to penalty clauses contained in certain of our carrier customer contracts, an unfavorable judgment in the Freedom Wireless suit which could result in substantial damages and could significantly restrictbcgi’s ability to conduct business, the ability to market and sell new solutions to wireless carriers, as well as the others factors that may affect future operating results detailed inbcgi’s quarterly report on Form 10-Q for the three months ended June 30, 2004 filed with the Securities and Exchange Commission.

Contact Information:

Email inquiries - investor_relations@bcgi.net

FRB | Weber Shandwick:

Alison Ziegler, General Inquiries (212) 445-8432

BOSTON COMMUNICATIONS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

	Three Months Ended				Nine Months Ended
	9/30/04		9/30/03		9/30/04			9/30/03
Revenues:
Billing and transaction processing services	$	25,591	$	24,669	$	79,127		$	69,840
Prepaid systems		1,429		1,907		2,788			4,390
		27,020		26,576		81,915			74,230
Expenses:
Cost of billing and transaction processing services revenues		6,232		5,775		18,093			16,779
Cost of prepaid systems revenues		660		706		1,636			2,144
Total cost of revenues		6,892		6,481		19,729			18,923
Gross margin (1)		20,128		20,095		62,186			55,307
Engineering, research and development		3,694		3,365		10,987			9,596
Sales and marketing		1,567		1,618		5,106			4,701
General and administrative		1,955		2,005		6,166			5,875
General and administrative – legal expense (2)		450		1,350		2,050			2,990
Depreciation and amortization		5,894		5,132		16,853			14,337
Total operating expenses		13,560		13,470		41,162			37,499
Operating income		6,568		6,625		21,024			17,808
Interest income		322		287		885			925
Income from continuing operations before income taxes		6,890		6,912		21,909			18,733
Provision for income taxes		2,722		2,626		8,655			7,123
Income from continuing operations		4,168		4,286		13,254			11,610
Discontinued operations (3):
Income/(loss) from discontinued operations, net of income taxes		—		8		(11	)		59
Net income	$	4,168	$	4,294	$	13,243		$	11,669
Basic Net Income Per Share:
Continuing operations	$	0.24	$	0.24	$	0.73		$	0.65
Net income	$	0.24	$	0.24	$	0.73		$	0.65
Weighted average common shares outstanding		17,534		18,202		18,035			17,897
Diluted Net Income Per Share:
Continuing operations	$	0.24	$	0.23	$	0.72		$	0.62
Net income	$	0.24	$	0.23	$	0.72		$	0.62
Weighted average common shares outstanding		17,732		18,797		18,395			18,672

Notes to Condensed Consolidated Statements of Operations:

(1) Gross margin does not include depreciation and amortization, which is shown separately.

(2) General and administrative – legal expenses consists primarily of legal fees to defend the patent infringement suit brought by Freedom Wireless

(3) The Company’s Roaming Service business was discontinued in the quarter ended March 31, 2004. 2003 amounts have been restated to reflect Roaming Services as discontinued operations.

SEGMENT INFORMATION

(Unaudited and in thousands, except percentages)

Three months ended September 30,	Billing and Transaction Processing Services			Prepaid Systems			Total
2004
Revenues	$	25,591		$	1,429		$	27,020
Gross margin*		19,359			769			20,128
Gross margin percentage*		76	%		54	%		74	%
2003
Revenues	$	24,669		$	1,907		$	26,576
Gross margin*		18,894			1,201			20,095
Gross margin percentage*		77	%		63	%		76	%
Nine months ended September 30,	Billing and Transaction Processing Services			Prepaid Systems			Total
2004
Revenues	$	79,127		$	2,788		$	81,915
Gross margin*		61,034			1,152			62,186
Gross margin percentage*		77	%		41	%		76	%
2003
Revenues	$	69,840		$	4,390		$	74,230
Gross margin*		53,061			2,246			55,307
Gross margin percentage*		76	%		51	%		75	%

* Gross margin and gross margin percentage are calculated excluding depreciation and amortization.

CONDENSED CONSOLIDATED BALANCE SHEET DATA

(unaudited and in thousands)

	September 30, 2004		December 31, 2003
ASSETS
Current assets:
Cash and short-term investments	$	70,877	$	66,513
Accounts receivable, net of allowance for billing adjustments and doubtful accounts of $794 in 2004 and $878 in 2003		16,629		18,386
Prepaid expenses and other assets		3,966		2,800
Deferred income taxes		902		1,260
Total current assets		92,374		88,959
Property and equipment, net		55,869		58,638
Goodwill and other assets		9,389		6,994
Total assets	$	157,632	$	154,591
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	14,025	$	18,755
Total current liabilities		14,025		18,755
Non-current liabilities:
Accrued pension liability		1,291		632
Deferred income taxes		8,103		7,003
Total non-current liabilities		9,394		7,635
Shareholders’ equity:
Common stock and additional paid-in capital		103,887		110,971
Retained earnings		30,326		17,230
Total shareholders’ equity		134,213		128,201
Total liabilities and shareholders’ equity	$	157,632	$	154,591

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited and in thousands)

	Nine months ended September 30,
	2004			2003
OPERATING ACTIVITIES
Net income from continuing operations	$	13,254		$	11,610
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,853			14,337
Deferred income taxes		1,458			1,814
Income tax benefit from exercise of stock options		—			2,323
Changes in operating assets and liabilities:
Accounts receivable		1,607			(2,666	)
Prepaid expenses and other assets		(1,148	)		(843	)
Accounts payable, accrued expenses and deferred revenue		(4,194	)		1,268
Net cash provided by operating activities of continuing operations		27,830			27,843
Income (loss) from discontinued operations		(11	)		59
Net change in operating assets and liabilities of discontinued operations		(303	)		(112	)
Net cash used in operating activities of discontinued operations		(314	)		(53	)
Net cash provided by operations		27,516			27,790
INVESTING ACTIVITIES
Purchases of long-term investments		(2,017	)		(1,517	)
Purchases of short-term investments, net of sales		4,772			(18,093	)
Purchase of property and equipment		(13,904	)		(26,680	)
Net cash used in investing activities		(11,149	)		(46,290	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and employee stock purchase plan		1,051			6,841
Repurchase of common stock		(8,181	)		—
Net cash provided by (used in) financing activities		(7,130	)		6,841
Increase (decrease) in cash and cash equivalents		9,237			(11,659	)
Cash and cash equivalents at beginning of period		2,960			31,146
Cash and cash equivalents at end of period	$	12,197		$	19,487

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