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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 December 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
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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 February 4, 1998:
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
-------------- -----------
Common Stock, $.01 par value 32,990,786
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1997 and September 30, 1997.............................. 3
Condensed Consolidated Statements of Operations - For the Three Months Ended
December 31, 1997 and 1996................................................................................ 4
Condensed Consolidated Statements of Cash Flows - For the Three Months Ended
December 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............................................................................................. 14
Item 6. Exhibits and Reports on Form 8-K.............................................................................. 14
SIGNATURE................................................................................................................. 15
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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)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
Current assets:
Cash and cash equivalents...................................................................... $ 76,275 $ 41,444
Accounts receivable, net....................................................................... 24,175 25,919
Purchased receivables.......................................................................... 90,235 70,175
Prepaids and other............................................................................. 3,494 3,196
---------- ----------
Total current assets......................................................................... 194,179 140,734
Property and equipment, net...................................................................... 17,289 18,156
Equipment held under capital leases, net......................................................... 695 606
Other assets, net................................................................................ 6,952 7,516
---------- ----------
Total assets................................................................................. $ 219,115 $ 167,012
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade account payable......................................................................... $ 16,748 $ 19,223
Accounts payable - billing customers.......................................................... 110,879 75,166
Accrued liabilities........................................................................... 27,206 17,728
Revolving line of credit for purchased receivables............................................ 0 0
Current portion of long-term debt............................................................. 606 606
Current portion of obligations under capital leases........................................... 429 441
---------- ----------
Total current liabilities................................................................... 155,868 113,164
Long-term debt, less current portion............................................................. 2,072 2,324
Obligations under capital leases, less current portion........................................... 183 290
Other liabilities................................................................................ 507 499
Deferred income taxes............................................................................ 1,966 2,048
---------- ----------
Total liabilities........................................................................... 160,596 118,325
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued or
outstanding at December 31 or September 30.................................................... 0 0
Common stock, $0.01 par value, 60,000,000 shares authorized; 32,677,082 shares
issued and outstanding at December 31; 32,395,170 shares issued and outstanding
at September 30............................................................................... 327 324
Additional paid-in capital....................................................................... 45,896 42,916
Retained earnings................................................................................ 13,250 6,397
Deferred compensation............................................................................ (954) (950)
---------- ----------
Total stockholders' equity.................................................................. 58,519 48,687
---------- ----------
Total liabilities and stockholders' equity.................................................. $ 219,115 $ 167,012
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
1997 1996
--------- ---------
Operating revenues............................................................................... $ 38,248 $ 27,818
Cost of revenues................................................................................. 23,185 17,958
--------- ---------
Gross profit..................................................................................... 15,063 9,860
Selling, general and administrative expenses..................................................... 4,574 2,903
Research and development......................................................................... 514 0
Advance funding program income................................................................... (2,056) (1,749)
Advance funding program expense.................................................................. 32 324
Depreciation and amortization expense............................................................ 1,515 521
--------- ---------
Income from operations........................................................................... 10,484 7,861
Other income (expense):
Interest income................................................................................ 719 242
Interest expense............................................................................... (90) (119)
Other, net..................................................................................... 30 (62)
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Total other income, net....................................................................... 659 61
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Income before provision for income taxes......................................................... 11,143 7,922
Provision for income taxes....................................................................... (4,290) (3,011)
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Net income....................................................................................... $ 6,853 $ 4,911
========= =========
Earnings per common share - basic (See Note 3)................................................... $ 0.21 $ 0.16
Earnings per common share - diluted (See Note 3)................................................. $ 0.20 $ 0.15
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
1997 1996
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Cash flows from operating activities:
Net income..................................................................................... $ 6,853 $ 4,911
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................................................ 1,515 521
Deferred compensation........................................................................ 166 0
Changes in operating assets and liabilities:
Decrease in accounts receivable............................................................. 1,744 1,041
Increase in prepaids and other.............................................................. (298) (114)
Decrease in accounts payable................................................................ (2,476) (952)
Increase in accrued liabilities............................................................. 4,539 1,307
Increase in other liabilities............................................................... 8 0
--------- ---------
Net cash provided by operating activities........................................................ 12,051 6,714
Cash flows from investing activities:
Purchases of property and equipment............................................................ (494) (5,628)
Collections of (payments for) purchased receivables from billing customers, net................ (20,060) 9,388
Collections of proceeds due (payments made) to billing customers, net.......................... 35,712 (7,948)
Collections of sales taxes due on behalf of billing customers, net............................. 6,068 11,862
Other investing activities..................................................................... 241 (734)
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Net cash provided by investing activities........................................................ 21,467 6,940
Cash flows from financing activities:
Payments on revolving line of credit for purchased receivables, net............................ 0 (18,799)
Proceeds from issuance of long-term debt....................................................... 0 1,063
Payments on long-term debt..................................................................... (252) (146)
Payments on capital leases..................................................................... (119) (238)
Proceeds from issuance of common stock......................................................... 1,684 787
--------- ---------
Net cash provided by (used in) financing activities.............................................. 1,313 (17,333)
--------- ---------
Net increase (decrease) in cash and cash equivalents............................................. 34,831 (3,679)
Cash and cash equivalents, beginning of period................................................... 41,444 34,135
--------- ---------
Cash and cash equivalents, end of period......................................................... $ 76,275 $ 30,456
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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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. ("BIC") 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, 1997. 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.
On January 9, 1998, the Company announced that its Board of Directors
effected a two-for-one share split of the Company's common stock via a
one-for-one stock dividend. The dividend was distributed on January 30, 1998 to
shareholders of record on January 20, 1998. No additional proceeds were
received on the dividend date and all costs associated with the share dividend
were capitalized as a reduction of additional paid-in capital. All share and
per share information in the accompanying condensed consolidated financial
statements has been adjusted to give retroactive effect to the stock dividend.
The Company has also submitted a proposal to its stockholders to increase the
number of authorized common shares from 60 million to 75 million. This proposal
will be decided on February 26, 1998, at the Annual Stockholders' Meeting.
NOTE 2. STATEMENT OF CASH FLOWS
Cash payments and non-cash activities during the periods indicated
were as follows:
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1997 1996
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(IN THOUSANDS)
Cash payments for income taxes...................................................... $ 316 $ 1,612
Cash payments for interest.......................................................... 123 632
Tax benefit recognized in connection with stock option exercises.................... 1,747 852
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. EARNINGS PER SHARE
Earnings per share for all periods have been restated to reflect the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," which established standards for computing and presenting
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS No. 128 requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. Basic EPS were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. Diluted EPS differs from basic EPS due to the assumed conversions of
potentially dilutive options and warrants that were outstanding during the
period. The following is a reconciliation of the numerators and the
denominators of the basic and diluted per-share computations for net income.
FOR THE QUARTER ENDED DECEMBER 31, 1997
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INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
BASIC EPS
Net income available to common stockholders 6,853,000 32,536,000 $0.21
=====
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 215,000
Stock options 1,831,000
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DILUTED EPS
Net income available to common stockholders
including assumed conversions 6,853,000 34,582,000 $0.20
========= ========== =====
FOR THE QUARTER ENDED DECEMBER 31, 1996
------------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
BASIC EPS
Net income available to common stockholders 4,911,000 30,202,000 $0.16
=====
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 299,000
Stock options 1,889,000
---------
DILUTED EPS
Net income available to common stockholders
including assumed conversions 4,911,000 32,390,000 $0.15
========= ========== =====
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BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The Company is obligated as a guarantor of certain equipment financing
agreements entered into by USLD Communications Corp. ("USLD"), a subsidiary of
LCI International, Inc. The aggregate unpaid principal amount of indebtedness
under such agreements at December 31, 1997 was approximately $5.4 million, due
in varying amounts through October 2000.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company and USLD shared a common individual on their respective
boards of directors through June 2, 1997. Therefore, USLD was considered a
related party for purposes of financial disclosure through this date. 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. Related party transactions
between the Company and USLD are summarized as follows:
THREE MONTHS ENDED
DECEMBER 31, 1996
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(IN THOUSANDS)
Sales to USLD...................................................................... $ 1,198
Purchases from USLD................................................................ 901
In addition, at December 31, 1996, the Company's accounts receivable
balance included $779,000 and the billing customers accounts payable balance
included $1,083,000 related to billing services performed for USLD. The Company
also had $774,000 payable to USLD included in accrued liabilities and $971,000
payable to USLD included in long-term debt at December 31, 1996.
The Company charters a jet airplane from a company associated with an
officer/director of the Company. Under the terms of the charter agreement, the
Company is obligated to pay minimum fees of $500,000 over the five years ended
December 31, 2002 for such charter services.
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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
GENERAL
The following is a discussion of the consolidated financial condition
and results of operations of the Company for the quarters ended December 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, 1997. 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 December 31.
RESULTS OF OPERATIONS
The following table presents certain items in the Company's Condensed
Consolidated Statements of Operations as a percentage of total revenues:
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1997 1996
------ ------
Operating revenues...................................................................... 100.0% 100.0%
Cost of revenues........................................................................ 60.6 64.6
---- ----
Gross profit............................................................................ 39.4 35.4
Selling, general and administrative expenses............................................ 12.0 10.4
Research and development................................................................ 1.3 0.0
Advance funding program income.......................................................... (5.4) (6.3)
Advance funding program expense......................................................... 0.1 1.2
Depreciation and amortization expense................................................... 4.0 1.9
---- ----
Income from operations.................................................................. 27.4 28.3
Other income, net....................................................................... 1.7 0.2
---- ----
Income before provision for income taxes................................................ 29.1 28.5
Provision for income taxes.............................................................. (11.2) (10.8)
---- ----
Net income.............................................................................. 17.9% 17.7%
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Operating Revenues
The Company's revenues are primarily derived from the provision of
billing clearinghouse and information management services to direct dial long
distance carriers and operator services providers ("Local Exchange Carrier
billing" or "LEC billing"). Revenues are also derived from enhanced billing
services provided to companies that offer 900 services or other non-regulated
telecommunications equipment and services. LEC billing 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.
The Company also develops, sells, and supports convergent billing
systems for telecommunications service providers and provides direct billing
outsourcing services through its wholly-owned subsidiary, Billing Concepts
Systems, Inc. ("BCS"). In addition to license and maintenance fees charged by
the Company for the use of its billing software applications, fees are also
charged on a time and materials basis for software customization and
programming services. Processing fees for direct billing services provided
through the Company's service bureau are assessed to customers based on volume.
Billing systems revenues also include retail sales of computer hardware and
third party software.
Total revenues for the quarter ended December 31, 1997 were $38.2
million, an increase of 37.5% from the comparable prior year quarter. LEC
billing services revenues increased 28.8% to $35.8 million in the first quarter
of 1998, from $27.8 million in the first quarter of 1997. The remaining
increase in revenues from the prior year quarter was attributable to billing
systems sales and related services. The LEC billing services revenue increase
is primarily attributable to an increase in the number of telephone call
records processed and billed on behalf of direct dial long distance customers.
Direct dial long distance billing services revenues have exceeded prior period
revenues on a quarterly basis since the inception of this business in 1993.
Revenues derived from operator and enhanced billing services customers in the
first quarter of 1998 also increased from the comparable prior year quarter due
to an increase in the number of telephone call records processed on behalf of
existing customers as well as new customers. Telephone call record volumes were
as follows:
THREE MONTHS ENDED
DECEMBER 31,
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1997 1996
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(IN MILLIONS)
Direct dial long distance services.............................................. 160.3 119.2
Operator services............................................................... 36.9 30.0
Enhanced billing services....................................................... 3.2 1.8
Billing management services..................................................... 96.9 88.2
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.
Cost of Revenues
Cost of revenues 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. Cost of revenues also
includes the cost of computer hardware and software sold, and the salaries and
benefits of software development, technical, service bureau and client service
personnel who generate revenue from hourly billings.
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The gross profit margin of 39.4% reported for the quarter ended
December 31, 1997 increased from 35.4% in the comparable prior year quarter.
This increase was primarily attributable to lower customer service and
telecommunications services costs. The lower customer service costs were
attributable to efficiencies resulting from the implementation of an automated
voice response system. The addition of sales of billing systems and related
services revenues in the first quarter of 1998 also served to improve gross
margin due to the higher margins associated with systems sales. The Company
currently believes that its gross profit margin could increase in subsequent
periods as a result of the potential addition of higher gross margin billing
systems sales and related services revenues, however, no such assurances can be
made.
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. SG&A expenses for the first quarter of
1998 were $4.6 million, representing 12.0% of revenues, compared to $2.9
million for the first quarter of 1997, or 10.4% of revenues. The increase in
SG&A expenses as a percentage of revenues was partially attributable to
increased expenses related to the expansion of the Company's facilities. The
higher SG&A expenses were also due to the growth of the management
infrastructure and technical staff of BCS, which was acquired during the third
quarter of 1997.
Research and Development
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related
expenses. The Company does not capitalize any research and development
expenses. In 1997, the Company commenced internally funded research and
development activities with respect to efforts to offer "invoice ready" billing
services. During the third quarter of 1997, the Company also acquired a
software development company that was actively involved in ongoing research and
development efforts associated with creating new and enhanced products related
to its convergent billing software platform. Consequently, research and
development expenses in the first quarter of 1998 were $514,000. The Company
intends to continue its research and development efforts in the future and
anticipates spending from $3 to $5 million during 1998 for such expenses.
Advance Funding Program Income and Expense
Advance funding program income increased 17.6% to $2.1 million for the
first quarter of 1998 from $1.7 million for the first quarter of 1997. The
increase was primarily the result of financing a higher level of customer
receivables under the Company's advance funding program. The monthly average
balance of purchased receivables was $79.6 million and $69.2 million for the
quarters ended December 31, 1997 and 1996, respectively.
Advance funding program expense decreased 90.1% to $32,000 for the
first quarter of 1998 from $324,000 for the first quarter of 1997. In addition
to declining from period to period, advance funding program expense declined
relative to advance funding program income due to the use of internally
generated funds for the financing of all purchased receivables during the first
quarter of 1998.
Depreciation and Amortization
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, leasehold improvements, costs incurred in securing contracts with
local telephone companies, goodwill and other intangibles. Asset lives range
between three and fifteen years.
Depreciation and amortization expense was $1.5 million in the first
quarter of 1998 compared with $521,000 in the first quarter of 1997.
Depreciation and amortization expense as a percentage of revenues was 4.0% and
1.9% in the first quarter of 1998 and 1997, respectively. The increase in the
percentage of revenues from the prior year quarter is attributable to increased
capital expenditures made in order to provide the infrastructure needed to
support the growth of the Company's employee base and the anticipated expansion
of the Company's business. Management expects that depreciation and
amortization expense will not continue to increase as a percentage of revenues
in subsequent periods.
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Income from Operations
Income from operations in the first quarter of 1998 was $10.5 million,
or 27.4% of revenues, compared to income from operations of $7.9 million, or
28.3% of revenues, in the first quarter of 1997. The decrease in income from
operations as a percentage of revenues from the prior year quarter is
attributable to higher depreciation and SG&A expenses as a percentage of
revenues and research and development expenses incurred in the first quarter of
1998, offset partly by a higher gross profit margin and higher net advance
funding income as a percentage of revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $76.3 million at December 31,
1997 from $41.4 million at September 30, 1997. Large fluctuations in daily cash
balances are normal due to the large amount of customer receivables that the
Company collects on behalf of its customers. The Company's working capital
position and current ratio increased to $38.3 million and 1.3:1 at December 31,
1997, from $27.6 million and 1.2:1 at September 30, 1997, respectively. Net
cash provided by operating activities was $12.1 million and $6.7 million in the
first quarter of 1998 and 1997, respectively.
The Company has a $50.0 million revolving line of credit facility with
certain lenders primarily to draw upon to advance funds to its billing
customers prior to collection of the funds from the local telephone companies.
This credit facility terminates on December 20, 1999. Borrowings under the
credit facility are limited to a portion of the Company's eligible receivables.
Management believes that the capacity under the credit facility will be
sufficient to fund advances to its billing customers for the foreseeable
future. No amounts were borrowed by the Company under its credit facility to
finance the advance funding program at either December 31, 1997 or September
30, 1997. At December 31, 1997, the amount available under the Company's
receivable financing facility was $50.0 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 December 31, 1997 was approximately $5.4
million, due in varying amounts through October 2000. Under certain of its
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 December 31, 1997.
Capital expenditures amounted to approximately $497,000 in the first
quarter of 1998 and related primarily to purchases of computer equipment and
software. The Company anticipates spending approximately $10 million over the
next nine months, including expenditures for local telephone company agreements
that will enable it to offer "invoice ready" billing services. The Company
believes that it will be able to fund expenditures with internally generated
funds and borrowings, but there can be no assurance that such funds will be
available or expended.
On January 9, 1998, the Company announced that its Board of Directors
effected a two-for-one share split of the Company's common stock via a
one-for-one stock dividend. The dividend was distributed on January 30, 1998 to
shareholders of record on January 20, 1998. No additional proceeds were
received on the dividend date and all costs associated with the share dividend
were capitalized as a reduction of additional paid-in capital. The Company has
also submitted a proposal to its stockholders to increase the number of
authorized common shares from 60 million to 75 million. This proposal will be
decided on February 26, 1998, at the Annual Stockholders' Meeting.
12
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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.
YEAR 2000 COMPLIANCE
The efficient operation of the Company's business is highly dependent
on its computer software programs and operating systems (collectively,
"Programs and Systems"). These Programs and Systems are used in several key
areas of the Company's business, including LEC billing processing, information
management services, convergent billing systems, and financial reporting, as
well as in various administrative functions. The Company has been evaluating
its Programs and Systems to identify potential year 2000 compliance problems,
as well as manual processes, external interfaces with customers, and services
supplied by vendors to coordinate year 2000 compliance and conversion. The year
2000 problem refers to the limitations of the programming code in certain
existing software programs to recognize date sensitive information for the year
2000 and beyond. Unless modified prior to the year 2000, such systems may not
properly recognize such information and could generate erroneous data or cause
a system to fail to operate properly.
Based on current information, the Company expects to attain year 2000
compliance and institute appropriate testing of its modifications and
replacements in a timely fashion and in advance of the year 2000 date change.
It is anticipated that modification or replacement of the Company's Programs
and Systems will be performed in-house by company personnel. The Company
believes that, with modifications to existing software and conversions to new
software, the year 2000 problem will not pose a significant operational problem
for the Company. However, because most computer systems are, by their very
nature, interdependent, it is possible that non-compliant third party computers
may not interface properly with the Company's computer systems. The Company
could be adversely affected by the year 2000 problem if it or unrelated parties
fail to successfully address this issue. Management of the Company currently
anticipates that the expenses and capital expenditures associated with its year
2000 compliance project will not have a material effect on its financial
position or results of operations.
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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 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 Earning Per Share (filed herewith)
27.1 Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K:
None.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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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: February 12, 1998 By: /s/ KELLY E. SIMMONS
----------------------------------
Kelly E. Simmons
Senior Vice President
Chief Financial Officer
(Duly authorized and principal
financial officer)
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Exhibit Index
Exhibit
Number Description
- ------- -----------
11.1 Computation of Earning Per Share
27.1 Financial Data Schedule