eFunds Reports Second Quarter 2002 Results
- Diluted EPS of $0.08, After Special Charges of $10.4 Million -
SCOTTSDALE, Ariz., Jul 26, 2002 -- eFunds Corporation (Nasdaq: EFDS), a leading provider of electronic payment, risk management and related technology and business process management services, today reported net income for the second quarter ended June 30, 2002 of $3.9 million, or $0.08 per diluted share. Operating income for the second quarter of 2002 was $4.7 million. Results for the second quarter of 2002 include $10.4 million in restructuring and other pre-tax charges. The reported results also reflect the pre-tax benefit of the reversal of $5.5 million in accruals for receivables allowances ($2.5 million) and performance-based employee compensation ($3.0 million) that existed at the beginning of the quarter. The Company recorded no expense for performance- based compensation in 2002 due to reduced revenue and earnings expectations.
Excluding the $10.4 million charge, net income was $11.2 million, or $0.24 per diluted share for the second quarter of 2002 and operating income was $15.1 million for the quarter. Excluding the restructuring and other charges and the benefits recognized from accrual reversals of $5.5 million, net income would have been $7.4 million, or $0.16 per diluted share.
For the same period last year, the Company reported operating income of $11.5 million and net income of $7.7 million, or $0.16 per diluted share ($0.19 per diluted share if adjusted for elimination of goodwill amortization as now required under SFAS No. 142).
Revenues in the second quarter of 2002 were $133.0 million, essentially flat as compared with revenues of $132.8 million reported in the second quarter of 2001.
The restructuring and other charges taken during the second quarter of 2002 include $3.4 million in severance costs, charges of $5.7 million for lease-related costs in conjunction with the consolidation of facilities and a net charge of $1.3 million related to software impairment and other charges.
"Our second quarter results demonstrate continuing progress toward improving the quality of our revenue mix and managing expenses in line with operations," said Gus Blanchard, Chairman and Chief Executive Officer. "Our base revenues were in the range of our earlier guidance and earnings slightly exceeded our previous projections. Revenue declines from data and software sales over the prior year period were offset by growth in our ATM Management and Electronic Payments businesses. Moreover, despite this shift to lower margin sources of revenues, efforts directed at improved cost controls and more effective cash management activities resulted in a $24 million increase in cash provided by operations compared to the first half of last year."
"At the same time, we began an extensive cost reduction plan in the second quarter that will result in additional expenses being taken out of the business over the balance of 2002. In addition, we continued to make progress in the expansion of our off premise ATM network with the acquisition of Evergreen Teller Services and SAMSAR ATM Company, bringing our installed base of ATMs to approximately 14,300. We are well underway with the strategic business review announced on June 4th, and will provide periodic updates on this initiative as we move forward," Blanchard said.
"Our balance sheet remains strong and our available cash resources should provide us with the flexibility and adaptability necessary to pursue the key opportunities for our long-term success we expect our ongoing strategic review to identify," he said.
Six Months Performance
For the six months ended June 30, 2002 reported operating income was $16.2 million and net income was $11.8 million, or $0.25 per diluted share. These results include $10.4 million of restructuring and other pre-tax charges and the pre-tax benefit of reversing $5.5 million in previously existing accruals. Savings also resulted from the elimination of planned performance- based employee compensation for the second quarter. Excluding the second quarter restructuring and other charges, net income for the six months was $19.1 million, or $0.40 per diluted share.
Operating income for the first six months of 2001 was $17.6 million and net income was $11.8 million, or $0.25 per diluted share, including special charges of $3.2 million associated with the closure of the Company`s Bothell, Washington facility. Excluding the $3.2 million charge, net income for the first six months of 2001 was $13.9 million, or $0.29 per diluted share ($0.34 per diluted share if adjusted for the elimination of goodwill amortization). Revenues for the six months ended June 30, 2002 totaled $266.5 million, an increase of one percent compared with $263.5 million recorded for the first six months of 2001.
Business Segment Highlights
Electronic Payments
Revenues from Electronic Payments, the Company`s largest business segment, increased 3 percent to $47.3 million from $45.7 million in the second quarter of 2001. Revenue growth was driven by higher EBT case counts and renewals of certain government contracts at improved rates. As anticipated, processing revenues from the STAR network declined 13 percent year over year.
Electronic Payments reported operating income rose to $14.1 million in the second quarter of 2002 compared to operating income of $11.5 million in the second quarter of 2001. Corresponding operating margins improved to 30 percent in the second quarter as compared to 25 percent in second quarter 2001. The improvement in operating margins over 2001 was largely due to a reduction in performance-based employee compensation and reduced expenses resulting from the transfer of internal consumer support functions to India.
ATM Management Services
The ATM Management Services segment reported revenues of $27.5 million, as compared to $18.3 million reported in the second quarter of the prior year. The growth in this segment was due primarily to acquisitions, as well as increased branding and equipment sales revenue.
The acquisition of additional ATM management companies during 2002 contributed $7.5 million in incremental processing and equipment sales revenue during the second quarter. This amount includes approximately $1.0 million of incremental revenues derived from the Company`s acquisition of Evergreen Teller Services, Inc. in June 2002. Evergreen managed a network of approximately 1,600 ATMs located in California and the Northwest United States. Evergreen is expected to contribute total incremental revenues of approximately $7 million in 2002. eFunds currently manages an installed base of approximately 14,300 ATMs.
Reported operating income from the ATM Management Services segment increased to $2.1 million in the second quarter of 2002 from $870,000 in the same period last year, while corresponding operating margins improved to 8 percent in the current quarter from 5 percent in the second quarter of 2001. Margin improvements were driven by efficiency gains through the integration of acquired businesses.
Decision Support and Risk Management
Revenues from Decision Support and Risk Management were $34.3 million, as compared with $39.9 million in the second quarter of 2001. Revenue growth from the Company`s ChexSystems(SM) products was offset by lower revenues from the sale of DebitReport(SM) and by a decline in sales of the Company`s SCAN(SM) products compared to last year.
Decision Support and Risk Management operating income was $4.3 million in the second quarter of 2002, compared to $13.0 million in the second quarter of 2001. Corresponding operating margins were 13 percent as compared to 33 percent last year. The year over year decline in reported operating margin is primarily due to a $6.0 million decline in revenue from sales of DebitReport and the impact of the restructuring charge recorded in the current year.
Professional Services
Professional Services revenues in the second quarter of 2002 were $23.9 million. In the second quarter of 2001, revenues from Professional Services were $28.8 million. The decline in revenue over the prior year period is due to lower software sales and a reduced emphasis on providing third party IT development services. Reported operating income was $8.6 million in the second quarter of 2002, compared to operating income of $9.4 million in the prior year. Corresponding operating margins were 36 percent as compared to 33 percent in the second quarter last year. The increase in operating margins is attributable to the adjustment to reduce performance-based employee compensation. Revenues received from Deluxe declined by six percent from the prior year period to $11.4 million.
Restructuring Plan
As previously announced, the Company has initiated a series of restructuring actions to lower its cost structure, improve operating efficiencies and position itself for future growth. These actions include headcount reductions, elimination of incentive bonuses for 2002 due to reduced revenue and earnings expectations and the curtailment of travel and other discretionary expenses.
Over the next several months, the Company will continue to focus on efforts to drive long-term growth and increase profitability. This review will likely result in additional restructuring and asset impairment charges in the third quarter.
Forward Looking Statements
The Company further clarified the guidance it provided on June 4th for the full year 2002. The Company said it expects full-year 2002 revenues to be in the range of $527 million to $542 million. The full-year revenue outlook gives effect to the recent acquisition of Evergreen, but does not include acquisitions of additional ATM management assets that may occur during the balance of the year. Earnings for the full year, excluding restructuring and other charges, are now expected to be in the range of $0.65 to $0.80 per diluted share. The full-year earnings expectations are based on an assumed annualized effective tax rate of 30 percent and 47.5 million diluted shares outstanding. Capital expenditures are expected to be in the range of $20 million to $25 million for the full year. Results for the third quarter are projected to be consistent with the current expectations for the full year.
About eFunds
eFunds delivers innovative, reliable and cost-effective technology solutions to meet its customers` payment and risk management, e-commerce and business process improvement needs. eFunds provides its services to financial institutions, financial services companies, electronic funds networks, retailers, government agencies, e-commerce providers, and other companies around the world. For more information, visit www.efunds.com .
Conference Call
eFunds will hold a one-hour conference call today at 10:00 AM EDT to discuss the company`s second quarter financial performance. Gus Blanchard, Chairman and CEO, Thomas Liston, Interim Chief Financial Officer and Mick Spilsbury, Senior Vice President of Product Management will host the call. The call will be open to the public. The conference call can be accessed by calling 706-643-7462. This call will also be broadcast on the company`s website at www.efunds.com . Interested parties are encouraged to click on the webcast link 10-15 minutes prior to the start of the conference call.
A replay of the call will be available approximately 2 hours after the call and will continue through midnight EDT on August 9, 2002. The replay can be accessed by dialing 800-642-1687 (in the U.S.) or 706-645-9291 (internationally) and entering reservation #4838575 or via the company`s website.
Please note: All statements made by eFunds on this call are the property of eFunds and subject to copyright protection. Recording or replay of this call is prohibited without the express written consent of eFunds.
Statements made in this release concerning the Company`s or management`s intentions, expectations, or predictions about future results or events are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are necessarily subject to risks and uncertainties that could cause actual results to vary from stated expectations, and such variations could be material and adverse. Factors that could result in such a variation include, but are not limited to, the inherent unreliability of earnings and revenue growth predictions due to numerous factors, including many beyond the Company`s control, potential difficulties, delays and unanticipated expenses inherent in the development and marketing of new products and services, competitive factors, and the numerous risks and potential additional costs, disruptions and delays associated with the establishment of new business initiatives. Additional information concerning these and other factors that could cause actual results to differ materially from the Company`s current expectations is contained in the Company`s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
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