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Comverse Announces Fiscal 2014 Fourth Quarter Results; Conference Call to be Held Today at 8:00 AM

WAKEFIELD, Mass., April 16, 2015 (GLOBE NEWSWIRE) -- Comverse, Inc. ("Comverse") (Nasdaq:CNSI) today announced its results for the fourth quarter ("Q4") and fiscal year ended January 31, 2015 ("fiscal 2014").

Consolidated Highlights: Below is selected consolidated financial information for Q4 and fiscal 2014, prepared in accordance with generally accepted accounting principles ("GAAP"), except as noted.

Comverse, Inc.: Three Months Ended
January 31,
Fiscal Years Ended
January 31,
(In thousands) 2015 2014 2015 2014
Total revenue $ 119,734 $ 166,514 $ 477,305 $ 652,501
Costs and expenses
Cost of revenue 75,694 112,140 308,642 402,476
Research and development, net 11,049 17,036 56,334 67,512
Selling, general and administrative 22,604 30,689 111,832 134,031
Other operating expenses 3,632 2,924 16,333 10,783
Total costs and expenses 112,979 162,789 493,141 614,802
Income (loss) from operations 6,755 3,725 (15,836) 37,699
Expense adjustments 8,041 8,730 35,918 18,950
Comverse performance (1) 14,796 12,455 20,082 56,649
Income (loss) before income tax (expense) benefit 5,040 1,514 (11,855) 27,875
Income tax (expense) benefit 4,868 14,263 (10,284) (9,189)
Net income (loss) 9,908 15,777 (22,139) 18,686
Basic earnings (loss) per share $ 0.45 $ 0.71 $ (1.00) $ 0.84
Diluted earnings (loss) per share $ 0.45 $ 0.70 $ (1.00) $ 0.83
Interest expense (165) (282) (641) (847)
Depreciation and amortization $ (5,469) $ (4,962) $ (20,359) $ (19,032)
Operating margin 5.6% 2.2% (3.3)% 5.8%
Comverse performance margin 12.4% 7.5% 4.2% 8.7%
Net cash (used in) provided by operating activities (2) $ (4,161) $ 12,008 $ (69,595) $ 6,621

(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 first quarter of the fiscal year ended January 31, 2014.

Tech Mahindra:

On April 15, 2015, Comverse and Tech Mahindra announced an agreement in principle on a strategic relationship, whereby Comverse will accelerate its transformation as a global innovator in digital services by leveraging Tech Mahindra's expertise and scale in development and delivery of digital offerings. As part of this initiative, employees from certain functions within Comverse's Digital Services business unit are anticipated to join Tech Mahindra.

"I am pleased with the progress we have made thus far, in terms of new wins in our business units and our organizational efforts. Our agreement in principle with Tech Mahindra is an integral step, and I am eager to continue our efforts in repositioning and transforming Comverse for a strong and healthy future. We see all of these steps offering important benefits to our company, our customers, our employees and our shareholders," said Philippe Tartavull, President and CEO of Comverse, Inc.

Business Segment Highlights:

Three Months Ended
January 31,
Fiscal Years Ended
January 31,
2015 2014 2015 2014
(Dollars in thousands)
SEGMENT RESULTS
BSS
Segment revenue $ 65,471 $ 78,239 $ 250,733 $ 299,561
Gross margin 37.3% 32.6% 41.5% 37.0%
Income from operations 11,231 9,316 50,511 44,636
Operating margin 17.2% 11.9% 20.1% 14.9%
Segment performance 12,033 10,017 53,410 47,557
Segment performance margin 18.4% 12.8% 21.3% 15.9%
Digital Services
Segment revenue $ 54,263 $ 88,275 $ 226,572 $ 352,940
Gross margin 40.9% 39.6% 38.4% 44.7%
Income from operations 13,730 28,098 56,015 127,008
Operating margin 25.3% 31.8% 24.7% 36.0%
Segment performance 13,825 28,134 56,213 127,224
Segment performance margin 25.5% 31.9% 24.8% 36.0%
All Other
Loss from operations $ (18,206) $ (33,689) $ (122,362) $ (133,945)
Segment performance (11,062) (25,696) (89,541) (118,132)

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

As of
(In millions) January 31, 2015 January 31, 2014
Cash and cash equivalents $ 158.1 $ 254.6
Restricted cash (including long-term restricted cash) and bank time deposits 43.7 68.2
Total $ 201.8 $ 322.8

Conference Call Details

Comverse will be conducting a conference call today, April 16, 2015 at 8:00 a.m. ET. To listen to the conference call live, please dial (678) 825-8369. Please dial-in at least ten minutes before the scheduled start time. A live webcast can be accessed at www.comverse.com by following links to the events and presentations page under the Investors section. Following the call, a replay of the webcast will be archived in the same location.

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 Standards Board's guidance relating to segment reporting, is not necessarily comparable to other similarly titled captions of other companies.

Segment performance is computed by management as (loss) income from operations adjusted for the following: (i) stock-based compensation expense; (ii) amortization of intangible assets; (iii) compliance-related professional fees; (iv) compliance-related compensation and other expenses; (v) Italian VAT recovery recorded within operating expense; (vi) strategic related costs (vii) write-off of property and equipment; (viii) certain litigation settlements and related costs; (ix) restructuring expenses; and (x) certain other gains and expenses. Compliance-related professional fees relate to fees and expenses recorded in connection with our efforts to remediate material weaknesses in internal control over financial reporting. Strategic related costs include business strategy evaluation and mergers and acquisition efforts.

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.

At the core of the evolution of how we communicate, exchange information and monetize the digital world, Comverse enables the creation and monetization of innovative digital services for telecom and enterprise service providers through its proven and innovative product portfolio that includes managed BSS and Policy (PCRF), Enterprise Billing and Digital Services - all backed by Managed and Professional Services. Comverse's extensive customer base spans more than 125 countries with solutions successfully delivered to over 450 communication service providers serving more than two billion subscribers. Comverse's solutions are available in a variety of delivery models, including on-site, cloud, hosted/SaaS and managed services. For more information, visit www.comverse.com.

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 relate to (among other factors) the market price of our stock, operating expenses and cash flows, variability of our tax provision, 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, 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
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Three Months Ended
January 31,
Fiscal Years Ended
January 31,
2015 2014 2015 2014
Revenue:
Product revenue $ 26,000 $ 61,359 $ 99,768 $ 220,167
Service revenue 93,734 105,155 377,537 432,334
Total revenue 119,734 166,514 477,305 652,501
Costs and expenses:
Product costs 16,035 36,323 55,572 116,259
Service costs 59,659 75,817 253,070 286,217
Research and development, net 11,049 17,036 56,334 67,512
Selling, general and administrative 22,604 30,689 111,832 134,031
Other operating expenses:
Restructuring expenses and write-off of property and equipment 3,632 2,924 16,333 10,783
Total other operating expenses 3,632 2,924 16,333 10,783
Total costs and expenses 112,979 162,789 493,141 614,802
Income (loss) from operations 6,755 3,725 (15,836) 37,699
Interest income 139 178 480 614
Interest expense (165) (282) (641) (847)
Foreign currency transaction (loss) gain, net (1,668) (2,529) 4,659 (10,290)
Other (expense) income, net (21) 422 (517) 699
Income (loss) before income tax benefit (expense) 5,040 1,514 (11,855) 27,875
Income tax benefit (expense) 4,868 14,263 (10,284) (9,189)
Net income (loss) 9,908 15,777 (22,139) 18,686
Weighted average common shares outstanding:
Basic 21,853,129 22,240,517 22,190,630 22,164,131
Diluted 21,966,408 22,555,426 22,190,630 22,382,234
Earnings (loss) per share attributable to Comverse, Inc.'s stockholders:
Basic earnings (loss) per share $ 0.45 $ 0.71 $ (1.00) $ 0.84
Diluted earnings (loss) per share $ 0.45 $ 0.70 $ (1.00) $ 0.83
COMVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
January 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $158,121 $ 254,580
Restricted cash and bank deposits 35,802 34,343
Accounts receivable, net of allowance of $4,403 and $6,945, respectively 71,670 89,361
Inventories 17,817 16,166
Deferred cost of revenue 7,059 14,500
Deferred income taxes 13,781 2,329
Prepaid expenses 15,156 17,000
Other current assets 10,570 1,680
Total current assets 329,976 429,959
Property and equipment, net 49,230 41,541
Goodwill 151,217 150,346
Intangible assets, net 4,049 5,153
Deferred cost of revenue 30,437 45,717
Deferred income taxes 3,064 1,720
Long-term restricted cash 7,940 33,815
Other assets 30,439 40,586
Total assets $ 606,352 $ 748,837
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 121,720 $ 168,406
Deferred revenue 185,323 239,902
Deferred income taxes 1,491 514
Income taxes payable 2,166 2,102
Total current liabilities 310,700 410,924
Deferred revenue 89,999 113,426
Deferred income taxes 56,815 43,735
Other long-term liabilities 135,456 147,942
Total liabilities 592,970 716,027
Commitments and contingencies
Equity:
Common stock, $0.01 par value - authorized, 100,000,000 shares; issued, 22,591,411 and 22,286,123 shares, respectively; outstanding, 21,830,081 and 22,251,226 shares, respectively 226 223
Treasury stock, at cost, 761,330 and 34,897 shares, respectively (17,211) (1,024)
Accumulated deficit (46,390) (24,251)
Additional paid-in-capital 45,935 34,530
Accumulated other comprehensive income 30,822 23,332
Total equity 13,382 32,810
Total liabilities and equity $ 606,352 $ 748,837
COMVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Years Ended January 31,
2015 2014 2013
Cash flows from operating activities:
Net (loss) income $ (22,139) $ 18,686 $ 6,248
Net income from discontinued operations (26,542)
Non-cash items
Depreciation and amortization 20,359 19,032 31,865
Impairment of goodwill 5,605
Provision for doubtful accounts 1,329 1,293 518
Stock-based compensation expense 11,368 10,208 7,517
Deferred income taxes 928 17,345 (11,724)
Inventory write-downs 2,553 4,239 6,097
Other non-cash items, net 2,705 (765) 1,244
Changes in assets and liabilities:
Accounts receivable 12,419 32,498 9,538
Inventories (6,750) 374 (7,085)
Deferred cost of revenue 22,723 45,882 36,124
Prepaid expense and other current assets (9,108) 12,845 14,881
Accounts payable and accrued expenses (38,005) (12,926) (19,806)
Income tax payable 993 (7,237) 37,828
Deferred revenue (69,277) (110,828) (85,036)
Tax contingencies (655) (24,036) 17,889
Other assets and liabilities 962 11 3,029
Net cash (used in) provided by operating activities - continuing operations (69,595) 6,621 28,190
Net cash used in operating activities - discontinued operations (1,277)
Net cash (used in) provided by operating activities (69,595) 6,621 26,913
Cash flows from investing activities:
Purchase of other assets (1,131)
Proceeds from sale of Starhome B.V., net of cash sold of $30.9 million 6,340
Purchase of property and equipment (23,377) (12,341) (5,402)
Acquisition of Solaiemes, net of cash acquired (2,673)
Net change in restricted cash and bank deposits 23,791 (26,918) (4,678)
Other, net 106 962 389
Net cash used in investing activities (2,153) (38,297) (4,482)
Cash flows from financing activities:
Decrease in net investment by CTI 1,052
Borrowings under note payable to CTI 9,500
CTI capital contribution 25,000 38,500
Payment for repurchase of common stock in connection with tax liabilities upon settlement of awards (1,053) (991) (33)
Payment for repurchase of common stock under repurchase program (15,134)
Proceeds from stock options exercises and issuance of subsidiary common stock 40 1,109 233
Borrowings 87
Repayments (100)
Net cash (used in) provided by financing activities (16,160) 25,118 49,252
Effects of exchange rates on cash and cash equivalents (8,551) (1,783) (1,954)
Net (decrease) increase in cash and cash equivalents (96,459) (8,341) 69,729
Cash and cash equivalents, beginning of year including cash from discontinued operations 254,580 262,921 193,192
Cash and cash equivalents, end of year $ 158,121 $ 254,580 $ 262,921
COMVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Three Months Ended
January 31,
Fiscal Years Ended
January 31,
2015 2014 2015 2014
(In thousands)
Income (loss) from operations $ 6,755 $ 3,725 $ (15,836) $ 37,699
Expense Adjustments:
Stock-based compensation expense 2,762 2,197 11,368 10,208
Amortization of intangible assets 793 695 2,984 2,765
Compliance-related professional fees 265 594 1,024 2,144
Compliance-related compensation and other expenses 36 (70) 199
Italian VAT recovery recorded within operating expense (10,861)
Strategic related costs 2,576
Write-off of property and equipment 322 231 1,970 482
Certain litigation settlements and related costs 41 (1) 87 (16)
Restructuring expenses 3,632 2,924 14,869 10,783
Gain on sale of fixed assets (10) (9) (31) (41)
Other 236 2,063 1,141 3,287
Total expense adjustments 8,041 8,730 35,918 18,950
Comverse performance $ 14,796 $ 12,455 $ 20,082 $ 56,649
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
BSS Digital
Services
All Other Combined
(In thousands)
Three Months Ended January 31, 2015
Maintenance revenue $ 30,085 $ 24,878 $ — $ 54,963
Customer solutions revenue 35,386 29,385 64,771
Total revenue $ 65,471 $ 54,263 $ — $ 119,734
Total costs and expenses $ 54,240 $ 40,533 $ 18,206 $ 112,979
Income (loss) from operations $ 11,231 $ 13,730 $ (18,206) $6,755
Computation of segment performance:
Segment revenue $ 65,471 $ 54,263 $ —
Total costs and expenses $ 54,240 $ 40,533 $ 18,206
Segment expense adjustments:
Stock-based compensation expense 2,762
Amortization of intangible assets 698 95
Compliance-related professional fees 265
Write-off of property and equipment 43 279
Certain litigation settlements and related cost 41
Restructuring expenses 3,632
Gain on sale of fixed assets 61 (71)
Other 236
Segment expense adjustments 802 95 7,144
Segment expenses 53,438 40,438 11,062
Segment performance $ 12,033 $ 13,825 $ (11,062)
Interest expense $ — $ — $ (165) $ (165)
Depreciation $ (890) $ (1,264) $ (2,522) $ (4,676)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
BSS Digital
Services
All Other Combined
(In thousands)
Three Months Ended January 31, 2014
Maintenance revenue $ 35,019 $ 33,924 $ — $ 68,943
Customer solutions revenue 43,228 54,343 97,571
Total revenue $ 78,247 $ 88,267 $ — $ 166,514
Total costs and expenses $ 68,923 $ 60,177 $ 33,689 $ 162,789
Income (loss) from operations $ 9,324 $ 28,090 $ (33,689) $ 3,725
Computation of segment performance:
Segment revenue $ 78,247 $ 88,267 $ —
Total costs and expenses $ 68,923 $ 60,177 $ 33,689
Segment expense adjustments:
Stock-based compensation expense 2,197
Amortization of intangible assets 695
Compliance-related professional fees 594
Compliance-related compensation and other expenses 36
Write-off of property and equipment 231
Certain litigation settlements and related costs (1)
Restructuring expenses 2,924
Gain on sale of fixed assets (9)
Other 6 2,057
Segment expense adjustments 701 36 7,993
Segment expenses 68,222 60,141 25,696
Segment performance $ 10,025 $ 28,126 $ (25,696)
Interest expense $ — $ — $ (282) $ (282)
Depreciation $ (1,259) $ (1,328) $ (1,680) $ (4,267)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
BSS Digital
Services
All Other Consolidated
(In thousands)
Fiscal Year Ended January 31, 2015
Maintenance revenue $ 118,086 $ 109,559 $ — $ 227,645
Customer solutions revenue 132,647 117,013 249,660
Total revenue $ 250,733 $ 226,572 $ — $ 477,305
Total costs and expenses $ 200,222 $ 170,557 $ 122,362 $ 493,141
Income (loss) from operations $ 50,511 $ 56,015 $ (122,362) $ (15,836)
Computation of segment performance:
Segment revenue $ 250,733 $ 226,572 $ —
Total costs and expenses $ 200,222 $ 170,557 $ 122,362
Segment expense adjustments:
Stock-based compensation expense 11,368
Amortization of intangible assets 2,791 193
Compliance-related professional fees 1,024
Compliance-related compensation and other expenses 1 (71)
Strategic-related cost 2,576
Write-off of property and equipment 45 3 1,922
Certain litigation settlements and related cost 87
Restructuring expenses 14,869
Gain on sale of fixed assets 63 1 (95)
Other 1,141
Segment expense adjustments 2,899 198 32,821
Segment expenses 197,323 170,359 89,541
Segment performance $ 53,410 $ 56,213 $ (89,541)
Interest expense $ — $ — $ (641) $ (641)
Depreciation $ (3,522) $ (5,092) $ (8,761) $ (17,375)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
BSS Digital
Services
All Other Combined
(In thousands)
Fiscal Year Ended January 31, 2014
Maintenance revenue $ 128,024 $ 135,242 $ — $ 263,266
Customer solutions revenue 171,537 217,698 389,235
Total revenue $ 299,561 $ 352,940 $ — $ 652,501
Total costs and expenses $ 254,925 $ 225,932 $ 133,945 $ 614,802
Income (loss) from operations $ 44,636 $ 127,008 $ (133,945) $ 37,699
Computation of segment performance:
Segment revenue $ 299,561 $ 352,940 $ —
Total costs and expenses $ 254,925 $ 225,932 $ 133,945
Segment expense adjustments:
Stock-based compensation expense 10,208
Amortization of intangible assets 2,765
Compliance-related professional fees 2,144
Compliance-related compensation and other expenses 122 216 (139)
Italian VAT recovery recorded within operating expense (10,861)
Write-off of property and equipment 28 454
Certain litigation settlements and related costs (16)
Restructuring expenses 10,783
Gain on sale of fixed assets (41)
Other 6 3,281
Segment expense adjustments 2,921 216 15,813
Segment expenses 252,004 225,716 118,132
Segment performance $ 47,557 $ 127,224 $ (118,132)
Interest expense $ — $ — $ (847) $ (847)
Depreciation $ (3,738) $ (5,040) $ (7,489) $ (16,267)

CONTACT: Mary T. Conway Conway Communications for Comverse, Inc. (781) 772-1679 ir@comverse.com

Source:Comverse, Inc.