Comverse Announces Fiscal 2013 Third Quarter Results; Conference Call to be Held Today at 8:00 AM

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WAKEFIELD, Mass., Dec. 12, 2013 (GLOBE NEWSWIRE) -- Comverse, Inc. ("Comverse") (Nasdaq:CNSI) today announced its results for the three months ended October 31, 2013.

Consolidated Highlights: Below is selected consolidated financial information for the three and nine months ended October 31, 2013 and 2012, prepared in accordance with generally accepted accounting principles ("GAAP"), except as noted.

Comverse, Inc.: Three Months Ended October 31, Nine Months Ended October 31,
(In thousands) 2013 2012 2013 2012
Total revenue $ 160,416 $ 185,200 $ 485,987 $ 494,176
Costs and expenses
Cost of revenue 95,888 118,171 290,336 316,772
Research and development, net 17,536 20,379 50,476 59,243
Selling, general and administrative 31,283 39,756 103,342 119,253
Other operating expenses 1,005 5,582 7,859 6,689
Total costs and expenses 145,712 183,888 452,013 501,957
Income (loss) from operations 14,704 1,312 33,974 (7,781)
Expense adjustments 5,634 12,333 10,220 26,294
Comverse performance (1) 20,338 13,645 44,194 18,513
Income (loss) before income tax benefit (expense) 11,816 1,199 26,361 (11,973)
Income tax benefit (expense) 11,320 (11,774) (23,452) (19,098)
Net (loss) income from continuing operations 23,136 (10,575) 2,909 (31,071)
Basic earnings (loss) per share from continuing operations $ 1.04 $ (0.48) $ 0.13 $ (1.42)
Diluted earnings (loss) per share from continuing operations $ 1.03 $ (0.48) $ 0.13 $ (1.42)
Interest expense (211) (218) (565) (594)
Depreciation and Amortization $ (4,753) $ (7,838) $ (14,070) $ (23,793)
Operating Margin 9.2% 0.7% 7.0% (1.6)%
Comverse performance margin 12.7% 7.4% 9.1% 3.7%
Net cash (used in) provided by operating activities - continuing operations (2) $ (15,028) $ 21,089 $ (5,387) $ (29,407)
(1) "Comverse performance" has not been prepared in accordance with GAAP. See "Presentation of Non-GAAP Financial Measures" below.
(2) Includes approximately $10.9 million of cash proceeds related to an Italian VAT refund received during the nine months ended October 31, 2013.

"Our continued focus on driving increased operational efficiency contributed to strong and improved profit margins in the third quarter. In addition, while capex spend among carriers continues to be highly scrutinized, we are pleased with the continued improvement in our overall global sales pipeline," said Philippe Tartavull, President & CEO of Comverse, Inc. "We believe Comverse's differentiated products, proven track record and global presence positions us well to capitalize on our multi-billion dollar market opportunity."

"As previously disclosed, the tax provision is subject to significant quarter-to-quarter variability based on numerous factors. From a full year perspective we currently expect our tax provision to be in the range of $27 million to $32 million and our cash taxes to be between $17 million and $20 million," said Tom Sabol, CFO of Comverse, Inc.

Business Segment Highlights:

Three Months Ended October 31, Nine Months Ended October 31,
2013 2012 2013 2012
(Dollars in thousands)
SEGMENT RESULTS
Comverse BSS
Segment revenue $ 67,323 $ 65,947 $ 207,451 $ 192,679
Gross margin 40.5% 29.4% 38.0% 33.7%
Income from operations 13,038 6,860 37,277 25,889
Operating margin 19.4% 10.4% 18.0% 13.4%
Segment performance 13,729 10,838 39,498 38,617
Segment performance margin 20.4% 16.4% 19.0% 20.0%
Comverse VAS
Segment revenue $ 84,255 $ 111,457 $ 248,754 $ 268,668
Gross margin 48.8% 48.5% 47.5% 46.3%
Income from operations 33,275 43,879 94,282 90,899
Operating margin 39.5% 39.4% 37.9% 33.8%
Segment performance 33,275 43,879 94,289 91,815
Segment performance margin 39.5% 39.4% 37.9% 34.2%
Comverse Other (a)
Segment revenue $ 8,838 $ 7,796 $ 29,782 $ 32,829
Gross margin (43.6)% (82.5)% (4.4)% (36.5)%
Loss from operations (31,609) (49,427) (97,585) (124,569)
Operating margin (357.6)% (634.0)% (327.7)% (379.4)%
Segment performance (26,666) (41,072) (89,593) (111,919)
Segment performance margin (301.7)% (526.8)% (300.8)% (340.9)%
(a) Consists of all of our operations other than the Comverse BSS and Comverse VAS segments, including Comverse Mobile Internet, Comverse's Netcentrex operations, and Comverse's global corporate functions that support its business units.

Selected Balance Sheet Highlights: Below is selected balance sheet data:

As of
(In millions) October 31, 2013 July 31, 2013
Cash and cash equivalents $ 244.2 $ 264.0
Restricted cash (including long-term restricted cash) and bank time deposits 69.2 69.1
Total $ 313.4 $ 333.1

Conference Call Details

Comverse will be conducting a conference call today, December 12, 2013 at 8:00 a.m. EST. To listen to the conference call live, dial 678-825-8369. Please dial-in at least five minutes before the scheduled start time. A live webcast can be accessed at www.comverse.com.

A replay of the call will be available, beginning at approximately 11:00 a.m. on December 12, 2013 for two days, at 404-537-3406, and archived via webcast at www.comverse.com. The replay access code is 20754015.

Segment Performance

We evaluate our business by assessing the performance of each of our operating segments. Our Chief Executive Officer is our chief operating decision maker ("CODM"). The CODM uses segment performance, as defined below, as the primary basis for assessing the financial results of the operating segments and for the allocation of resources. Segment performance, as we define it in accordance with the Financial Accounting Standard Board's ("FASB") guidance relating to segment reporting, is not necessarily comparable to other similarly titled captions of other companies.

Segment performance is computed by management as income (loss) from operations adjusted for the following: (i) stock-based compensation expense; (ii) amortization of acquisition-related intangibles; (iii) compliance-related professional fees; (iv) compliance-related compensation and other expenses; (v) impairment of goodwill; (vi) impairment of property and equipment; (vii) certain litigation settlements and related costs; (viii) Italian VAT refund recovery recorded within operating expenses; (ix) restructuring expenses; and (x) certain other gains and expenses. Compliance-related professional fees and compliance-related compensation and other expenses relate to fees and expenses recorded in connection with CTI's and our efforts to (a) complete certain financial statements and audits of such financial statements and (b) remediate material weaknesses in internal control over financial reporting.

Presentation of Non-GAAP Financial Measures

We provide Comverse performance, a non-GAAP financial measure, as additional information for our operating results. This measure is not in accordance with, or an alternative for, GAAP financial measures and may be different from, or not comparable to similarly titled or other non-GAAP financial measures used by other companies. We believe that the presentation of this non-GAAP financial measure provides useful information to investors regarding certain additional financial and business trends relating to our results of operations as viewed by management in monitoring our businesses, reviewing financial results and for planning purposes. See "Consolidated Reconciliation of GAAP to Non-GAAP Financial Measures" below.

About Comverse, Inc.

Comverse® is a leading provider of telecom business enablement solutions that support service innovation and smart monetization through a rich portfolio of BSS, Data Management and Monetization, Digital Services, Value Added Services, IP Communications and Professional Services. Comverse's extensive customer base spans more than 125 countries and covers over 450 communication service providers serving more than two billion subscribers. Our innovative product portfolio enables communication service providers to unleash the value of the network for their customers by making their networks smarter. Comverse's solutions are available in a variety of delivery models, including on-site, cloud, hosted and managed services.

Forward-Looking Statements

This press release includes "forward-looking statements." Forward-looking statements include financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "expects," "plans," "anticipates," "estimates," "believes," "potential," "projects," "forecasts," "intends," or the negative thereof or other comparable terminology. By their very nature, forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results, performance and the timing of events to differ materially from those anticipated, expressed or implied by the forward-looking statements in this press release. Such risks or uncertainties may give rise to future claims and increase exposure to contingent liabilities. These risks and uncertainties arise from (among other factors) the risk that our managed service offering may not grow as expected and the additional risks described in the sections entitled "Forward-Looking Statements" and Item 1A, "Risk Factors" and elsewhere in the company's Annual Report on Form 10-K filed with the SEC on May 16, 2013, or in subsequently filed periodic, current or other reports. We undertake no commitment to update or revise any forward-looking statements except as required by law.

These risks and uncertainties discussed above, as well as others, are discussed in greater detail in our filings with the SEC. The documents and reports we file with the SEC are available through us, or our website, www.comverse.com, or through the SEC's Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) at www.sec.gov.

COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share data)
Three Months Ended October 31, Nine Months Ended October 31,
2013 2012 2013 2012
Revenue:
Product revenue $ 49,413 $ 70,926 $ 158,808 $ 170,465
Service revenue 111,003 114,274 327,179 323,711
Total revenue 160,416 185,200 485,987 494,176
Costs and expenses:
Product costs 23,551 36,367 79,936 88,300
Service costs 72,337 81,804 210,400 228,472
Research and development, net 17,536 20,379 50,476 59,243
Selling, general and administrative 31,283 39,756 103,342 119,253
Other operating expenses:
Impairment of goodwill 5,605 5,605
Restructuring expenses 1,005 (23) 7,859 1,084
Total other operating expenses 1,005 5,582 7,859 6,689
Total costs and expenses 145,712 183,888 452,013 501,957
Income (loss) from operations 14,704 1,312 33,974 -7,781
Interest income 121 163 436 606
Interest expense (211) (218) (565) (594)
Interest expense on notes payable to CTI (205) (455)
Other (expense) income, net (2,798) 147 (7,484) (3,749)
Income (loss) before income tax benefit (expense) 11,816 1,199 26,361 (11,973)
Income tax benefit (expense) 11,320 (11,774) (23,452) (19,098)
Net income (loss) from continuing operations 23,136 (10,575) 2,909 (31,071)
Income from discontinued operations, net of tax 21,831 26,542
Net income (loss) 23,136 11,256 2,909 (4,529)
Less: Net income attributable to noncontrolling interest (157) (1,167)
Net income (loss) attributable to Comverse, Inc. $ 23,136 $ 11,099 $ 2,909 $ (5,696)
Weighted average common shares outstanding:
Basic 22,218,600 21,923,241 22,138,389 21,923,241
Diluted 22,412,267 21,923,241 22,312,009 21,923,241
Net income (loss) attributable to Comverse, Inc.
Net income (loss) from continuing operations $ 23,136 $ (10,575) $ 2,909 $ (31,071)
Income from discontinued operations, net of tax 21,674 25,375
Net income (loss) attributable to Comverse, Inc. $ 23,136 $ 11,099 $ 2,909 $ (5,696)
Earnings (loss) per share attributable to Comverse, Inc.'s stockholders:
Basic earnings (loss) per share
Continuing operations $ 1.04 $ (0.48) $ 0.13 $ (1.42)
Discontinued operations 0.99 1.16
Basic earnings (loss) per share $ 1.04 $ 0.51 $ 0.13 $ (0.26)
Diluted earnings (loss) per share
Continuing operations $ 1.03 $ (0.48) $ 0.13 $ (1.42)
Discontinued operations 0.99 1.16
Diluted earnings (loss) per share $ 1.03 $ 0.51 $ 0.13 $ (0.26)
COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share data)
October 31, January 31,
2013 2013
ASSETS
Current assets:
Cash and cash equivalents $ 244,186 $ 262,921
Restricted cash and bank time deposits 33,354 28,484
Accounts receivable, net of allowance of $8,155 and $8,841, respectively 85,040 123,612
Inventories 17,690 24,800
Deferred cost of revenue 25,040 34,031
Deferred income taxes 11,553 17,938
Prepaid expenses and other current assets 30,906 35,119
Total current assets 447,769 526,905
Property and equipment, net 40,382 37,442
Goodwill 150,103 149,987
Intangible assets, net 5,840 7,909
Deferred cost of revenue 50,782 72,121
Deferred income taxes 8,390 9,421
Restricted cash - long-term 35,895 14,030
Other assets 43,918 $ 39,975
Total assets $ 783,079 $ 857,790
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 165,319 $ 185,611
Deferred revenue 259,842 320,347
Deferred income taxes 6,829 7,689
Income taxes payable 6,677 8,538
Total current liabilities 438,667 522,185
Deferred revenue 113,264 143,725
Deferred income taxes 50,681 41,767
Other long-term liabilities 166,989 168,876
Total liabilities 769,601 876,553
Commitments and contingencies
Equity:
Comverse, Inc. stockholders' equity:
Common stock, $0.01 par value - authorized, 100,000,000 shares; issued 22,257,546 and 21,934,569 shares, respectively; outstanding, 22,227,077 and 21,933,427 shares, respectively 223 219
Treasury stock, at cost, 30,469 and 1,142 shares, respectively (853) (33)
Accumulated deficit (40,028) (42,937)
Additional paid in capital 32,070 2,237
Accumulated other comprehensive income 22,066 21,751
Total equity 13,478 (18,763)
Total liabilities and equity $ 783,079 $ 857,790
COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended October 31,
2013 2012
Cash flows from operating activities:
Net income (loss) $ 2,909 $ (4,529)
Net income from discontinued operations (26,542)
Non-cash operating items:
Depreciation and amortization 14,070 23,793
Impairment of goodwill 5,605
Provision for doubtful accounts 824 386
Stock-based compensation expense 8,011 5,512
Deferred income taxes 15,050 (6,255)
Inventory write-downs 3,916 4,755
Other non-cash items, net (1,355) 1,243
Changes in assets and liabilities:
Accounts receivable 37,156 19,751
Inventories (19) (8,321)
Deferred cost of revenue 30,322 25,254
Prepaid expense and other current assets (433) 9,761
Accounts payable and accrued expense (16,870) (6,737)
Accrued income taxes (1,379) 5,852
Deferred revenue (89,955) (90,426)
Tax contingencies (4,624) 11,109
Other assets and liabilities (3,010) 382
Net cash used in operating activities - continuing operations (5,387) (29,407)
Net cash used in operating activities - discontinued operations (1,277)
Net cash used in operating activities (5,387) (30,684)
Cash flows from investing activities:
Proceeds from sale of Starhome B.V., net of cash sold of $30.9 million 6,340
Purchases of property and equipment (9,832) (3,896)
Net change in restricted cash and bank time deposits (27,324) (5,300)
Proceeds from asset sales 78 309
Other, net 843 (683)
Net cash used in investing activities (36,235) (3,230)
Cash flows from financing activities:
Decrease in net investment by CTI (285)
Borrowings under note payable to CTI 9,500
CTI capital contribution 25,000 38,500
Repurchase of common stock (820)
Proceeds from exercises of stock options 846
Other, net (35)
Net cash provided by financing activities 25,026 47,680
Effects of exchange rates on cash and cash equivalents (2,139) (1,708)
Net (decrease) increase in cash and cash equivalents (18,735) 12,058
Cash and cash equivalents, beginning of period including cash from discontinued operations 262,921 193,192
Cash and cash equivalents, end of period $ 244,186 $ 205,250
COMVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Table of Reconciliation from GAAP Income (loss) from operations to Non GAAP Comverse Performance Three Months Ended October 31, Nine Months Ended October 31,
(Dollars in thousands) 2013 2012 2013 2012
Income (loss) from operations $ 14,704 $ 1,312 $ 33,974 $ (7,781)
Expense Adjustments:
Stock-based compensation expense 2,668 1,880 8,011 5,512
Amortization of acquisition-related intangibles 692 3,976 2,070 12,048
Compliance-related professional fees 744 176 1,550 189
Compliance-related compensation and other expenses (44) 288 163 1,841
Impairment of goodwill 5,605 5,605
Impairment of property and equipment 208 15 251 50
Certain litigation settlements and related costs 8 413 (15) 170
Italian VAT refund recovery recorded within operating expenses (10,861)
Restructuring expenses 1,005 (23) 7,859 1,084
Gain on sale of fixed assets (14) (32)
Other, net 367 3 1,224 (205)
Total expense adjustments 5,634 12,333 10,220 26,294
Comverse performance $ 20,338 $ 13,645 $ 44,194 $ 18,513
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSS Comverse VAS Comverse Other Consolidated
(In thousands)
Three Months Ended October 31, 2013
Total revenue $ 67,323 $ 84,255 $ 8,838 $ 160,416
Total costs and expenses $ 54,285 $ 50,980 $ 40,447 $ 145,712
Income (loss) from operations $ 13,038 $ 33,275 $ (31,609) $ 14,704
Computation of segment performance:
Segment revenue $ 67,323 $ 84,255 $ 8,838
Total costs and expenses $ 54,285 $ 50,980 $ 40,447
Segment expense adjustments:
Stock-based compensation expense 2,668
Amortization of acquisition-related intangibles 692
Compliance-related professional fees 744
Compliance-related compensation and other expenses (44)
Impairment of property and equipment 208
Certain litigation settlements and related costs 8
Restructuring expenses 1,005
Gain (loss) on sale of fixed assets (1) (13)
Other, net 367
Segment expense adjustments 691 4,943
Segment expenses 53,594 50,980 35,504
Segment performance $ 13,729 $ 33,275 $ (26,666)
Interest expense $ — $ — $ (211) $ (211)
Depreciation and amortization $ (1,515) $ (1,247) $ (1,991) $ (4,753)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSS Comverse VAS Comverse Other Consolidated
(In thousands)
Three Months Ended October 31, 2012
Total revenue $ 65,947 $ 111,457 $ 7,796 $ 185,200
Total costs and expenses $ 59,087 $ 67,578 $ 57,223 $ 183,888
Income (loss) from operations $ 6,860 $ 43,879 $ (49,427) $ 1,312
Computation of segment performance:
Segment revenue $ 65,947 $ 111,457 $ 7,796
Total costs and expenses $ 59,087 $ 67,578 $ 57,223
Segment expense adjustments:
Stock-based compensation expense 1,880
Amortization of acquisition-related intangibles 3,976
Compliance-related professional fees 176
Compliance-related compensation and other expenses 288
Impairment of goodwill 5,605
Impairment of property and equipment 15
Certain litigation settlements and related costs 413
Restructuring expenses (23)
Other, net 2 1
Segment expense adjustments 3,978 8,355
Segment expenses 55,109 67,578 48,868
Segment performance $ 10,838 $ 43,879 $ (41,072)
Interest expense $ — $ — $ (218) $ (218)
Depreciation and amortization $ (4,780) $ (1,243) $ (1,815) $ (7,838)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSS Comverse VAS Comverse Other Consolidated
(In thousands)
Nine Months Ended October 31, 2013
Total revenue $ 207,451 $ 248,754 $ 29,782 $ 485,987
Total costs and expenses $ 170,174 $ 154,472 $ 127,367 $ 452,013
Income (loss) from operations $ 37,277 $ 94,282 $ (97,585) $ 33,974
Computation of segment performance:
Segment revenue $ 207,451 $ 248,754 $ 29,782
Total costs and expenses $ 170,174 $ 154,472 $ 127,367
Segment expense adjustments:
Stock-based compensation expense 8,011
Amortization of acquisition-related intangibles 2,070
Compliance-related professional fees 1,550
Compliance-related compensation and other expenses 122 7 34
Impairment of property and equipment 29 1 221
Certain litigation settlements and related costs (15)
Italian VAT recovery recorded within operating expense (10,861)
Restructuring expenses 7,859
Gain on sale of fixed assets (1) (31)
Other, net 1,224
Segment expense adjustments 2,221 7 7,992
Segment expenses 167,953 154,465 119,375
Segment performance $ 39,498 $ 94,289 $ (89,593)
Interest expense $ — $ — $ (565) $ (565)
Depreciation and amortization $ (4,549) $ (3,712) $ (5,809) $ (14,070)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse BSS Comverse VAS Comverse Other Consolidated
(In thousands)
Nine Months Ended October 31, 2012
Total revenue $ 192,679 $ 268,668 $ 32,829 $ 494,176
Total costs and expenses $ 166,790 $ 177,769 $ 157,398 $ 501,957
Income (loss) from operations $ 25,889 $ 90,899 $ (124,569) $ (7,781)
Computation of segment performance:
Segment revenue $ 192,679 $ 268,668 $ 32,829
Total costs and expenses $ 166,790 $ 177,769 $ 157,398
Segment expense adjustments:
Stock-based compensation expense 5,512
Amortization of acquisition-related intangibles 12,048
Compliance-related professional fees 189
Compliance-related compensation and other expenses 678 916 247
Impairment of goodwill 5,605
Impairment of property and equipment 50
Certain litigation settlements and related costs 170
Restructuring expenses 1,084
Other, net 2 (207)
Segment expense adjustments 12,728 916 12,650
Segment expenses 154,062 176,853 144,748
Segment performance $ 38,617 $ 91,815 $ (111,919)
Interest expense $ — $ — $ (594) $ (594)
Depreciation and amortization $ (14,443) $ (3,688) $ (5,662) $ (23,793)

CONTACT: Sheila Ennis ICR for Comverse, Inc. 203-682-8338 Sheila.ennis@icrinc.com

Source:Comverse, Inc.