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

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

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

Comverse, Inc.: Three Months Ended July 31, Six Months Ended July 31,
(In thousands) 2013 2012 2013 2012
Total revenue $169,753 $171,226 $325,571 $308,976
Costs and expenses
Cost of revenue 103,484 103,178 194,448 198,601
Research and development, net 16,860 19,792 32,940 38,864
Selling, general and administrative 35,349 34,039 72,059 79,497
Other operating expenses 2,633 427 6,854 1,107
Total costs and expenses 158,326 157,436 306,301 318,069
Income (loss) from operations 11,427 13,790 19,270 (9,093)
Expense adjustments 6,702 7,176 4,586 13,962
Comverse performance (1) 18,129 20,966 23,856 4,869
Income (loss) before income tax provision 12,848 11,231 14,545 (13,172)
Income tax provision (29, 935) (5,130) (34,772) (7,324)
Net (loss) income from continuing operations (17,087) 6,101 (20,227) (20,496)
Basic and diluted (loss) earnings per share from continuing operations $ (0.77) $0.28 $ (0.92) $ (0.93)
Interest expense (166) (180) (354) (376)
Depreciation and Amortization $(4,746) $(7,910) $ (9,317) $ (15,955)
Operating Margin 6.7% 8.1% 5.9% (2.9)%
Comverse performance margin 10.7% 12.2% 7.3% 1.6%
Net cash provided by (used in) operating activities - continuing operations (2) $ (222) $ (4,797) $9,641 $ (50,496)

(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 six months ended July 31, 2013.

"We are pleased to report that with the close of the second quarter, Comverse has entered a new phase in the effort to transform our business. We are on track with regard to the initiatives we set out last December to improve operating efficiency and industrialize our product offerings so that we can refocus on growing bookings in the second half of the year. We believe our newest Comverse ONE offering and the expansion of our managed services business will drive this growth," said Philippe Tartavull, President & CEO of Comverse, Inc. "In addition, through our investment in state-of-the-art technology, we are delivering on our IP messaging, SaaS and hosting initiatives."

"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 $10 million and $15 million," said Tom Sabol, CFO of Comverse, Inc.

Business Segment Highlights:

Three Months Ended July 31, Six Months Ended July 31,
2013 2012 2013 2012
(Dollars in thousands)
SEGMENT RESULTS
Comverse BSS
Segment revenue 68,463 69,052 140,128 126,732
Gross margin 34.3% 38.5% 36.8% 35.9%
Income from operations 9,186 14,632 24,239 19,029
Operating margin 13.4% 21.2% 17.3% 15.0%
Segment performance 9,919 18,679 25,769 27,780
Segment performance margin 14.5% 27.1% 18.4% 21.9%
Comverse VAS
Segment revenue 88,285 91,289 164,499 157,211
Gross margin 52.8% 46.8% 46.8% 44.8%
Income from operations 38,327 31,180 61,007 47,020
Operating margin 43.4% 34.2% 37.1% 29.9%
Segment performance 38,326 31,323 61,014 47,936
Segment performance margin 43.4% 34.3% 37.1% 30.5%
Comverse Other (a)
Segment revenue 13,005 10,885 20,944 25,033
Gross margin (29.2)% (11.4)% 12.2% (22.1)%
Loss from operations (36,086) (32,022) (65,976) (75,142)
Operating margin (277.5)% (294.2)% (315.0)% (300.2)%
Segment performance (30,116) (29,036) (62,927) (70,847)
Segment performance margin (231.6)% (266.8)% (300.5)% (283.0)%

(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 July 31, 2013 and April 30, 2013:

As of
(In millions) July 31, 2013 April 30, 2013
Cash and cash equivalents $264.0 $268.5
Restricted cash (including long-term restricted cash) and bank time deposits 69.1 67.5
Total $333.1 $336.0

Conference Call Details

Comverse will be conducting a conference call today, September 12, 2013 at 8:00 a.m. EDT. 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 September 12, 2013 for two days, at 404-537-3406, and archived via webcast at www.comverse.com. The replay access code is 56015539.

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 property and equipment; (vi) certain litigation settlements and related costs; (vii) Italian VAT refund recovery recorded within operating expenses; (viii) restructuring charges; and (ix) certain other gains and charges. 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 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 July 31, Six Months Ended July 31,
2013 2012 2013 2012
Revenue:
Product revenue $56,491 $51,953 $109,395 $99,539
Service revenue 113,262 119,273 216,176 209,437
Total revenue 169,753 171,226 325,571 308,976
Costs and expenses:
Product costs 28,751 26,100 56,385 51,933
Service costs 74,733 77,078 138,063 146,668
Research and development, net 16,860 19,792 32,940 38,864
Selling, general and administrative 35,349 34,039 72,059 79,497
Other operating expenses:
Restructuring charges 2,633 427 6,854 1,107
Total costs and expenses 158,326 157,436 306,301 318,069
Income (loss) from operations 11,427 13,790 19,270 (9,093)
Interest income 143 221 315 443
Interest expense (166) (180) (354) (376)
Interest expense on notes payable to CTI (141) (250)
Other income (expense), net 1,444 (2,459) (4,686) (3,896)
Income (loss) before income tax provision 12,848 11,231 14,545 (13,172)
Income tax provision (29,935) (5,130) (34,772) (7,324)
Net (loss) income from continuing operations (17,087) 6,101 (20,227) (20,496)
Income from discontinued operations, net of tax 4,282 4,711
Net (loss) income (17,087) 10,383 (20,227) (15,785)
Less: Net income attributable to noncontrolling interest (856) (1,010)
Net (loss) income attributable to Comverse, Inc. $ (17,087) $9,527 $ (20,227) $ (16,795)
Weighted average common shares outstanding:
Basic and diluted 22,186,729 21,923,241 22,097,619 21,923,241
Net (loss) income attributable to Comverse, Inc.
Net (loss) income from continuing operations $ (17,087) $6,101 $ (20,227) $ (20,496)
Income from discontinued operations, net of tax 3,426 3,701
Net (loss) income attributable to Comverse, Inc. $ (17,087) $9,527 $ (20,227) $ (16,795)
(Loss) earnings per share attributable to Comverse, Inc.'s stockholders:
Basic and diluted (loss) earnings per share
Continuing operations $ (0.77) $0.28 $ (0.92) $ (0.93)
Discontinued operations 0.15 0.16
Basic and diluted (loss) earnings per share $ (0.77) $0.43 $ (0.92) $ (0.77)
COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share data)
July 31, January 31,
2013 2013
ASSETS
Current assets:
Cash and cash equivalents $264,004 $262,921
Restricted cash and bank time deposits 31,192 28,484
Accounts receivable, net of allowance of $8,585 and $8,841, respectively 116,456 123,612
Inventories 20,039 24,800
Deferred cost of revenue 24,385 34,031
Deferred income taxes 16,036 17,938
Prepaid expenses and other current assets 32,163 35,119
Total current assets 504,275 526,905
Property and equipment, net 39,332 37,442
Goodwill 149,579 149,987
Intangible assets, net 6,511 7,909
Deferred cost of revenue 59,897 72,121
Deferred income taxes 6,322 9,421
Other assets 78,924 54,005
Total assets $844,840 $857,790
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $176,025 $185,611
Deferred revenue 305,115 320,347
Deferred income taxes 6,801 7,689
Income taxes payable 22,444 8,538
Total current liabilities 510,385 522,185
Deferred revenue 122,998 143,725
Deferred income taxes 42,077 41,767
Other long-term liabilities 178,761 168,876
Total liabilities 854,221 876,553
Commitments and contingencies
Equity:
Comverse, Inc. stockholders' equity:
Common stock, $0.01 par value - authorized, 100,000,000 shares; issued 22,241,704 and 21,934,569 shares, respectively; outstanding, 22,212,794 and 21,933,427 shares, respectively 222 219
Treasury stock, at cost, 28,910 and 1,142 shares, respectively (803) (33)
Accumulated deficit (63,164) (42,937)
Additional paid in capital 29,113 2,237
Accumulated other comprehensive income 25,251 21,751
Total equity (9,381) (18,763)
Total liabilities and equity $844,840 $857,790
COMVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended July 31,
2013 2012
Cash flows from operating activities:
Net cash provided by (used in) operating activities - continuing operations $9,641 $ (50,496)
Net cash used in operating activities - discontinued operations (2,964)
Net cash provided by (used in) operating activities 9,641 (53,460)
Cash flows from investing activities:
Proceeds from sales and maturities of investments 100
Purchase of property and equipment (4,630) (3,269)
Net change in restricted cash and bank time deposits (27,569) 5
Proceeds from asset sales 61 309
Other, net 743 (153)
Net cash used in investing activities (31,295) (3,108)
Cash flows from financing activities:
Decrease in net investment by CTI 1,669
Borrowings under note payable to CTI 9,500
CTI capital contribution 25,000
Other, net (32)
Repurchase of common stock (770)
Proceeds from exercises of stock options 556
Net cash provided by financing activities 24,786 11,137
Effects of exchange rates on cash and cash equivalents (2,049) (2,092)
Net increase (decrease) in cash and cash equivalents 1,083 (47,523)
Cash and cash equivalents, beginning of period including cash from discontinued operations 262,921 193,192
Cash and cash equivalents, end of period including cash from discontinued operations 264,004 145,669
Less: cash and cash equivalents of discontinued operations, end of period (29,349)
Cash and cash equivalents, end of period $264,004 $116,320
Non-cash investing and financing transactions:
Accrued but unpaid purchases of property and equipment $3,278 $505
Inventory transfers to property and equipment $2,495 $1,365
COMVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Table of Reconciliation from GAAP Income (loss) from operations Three Months Ended Six Months Ended
to Non GAAP Comverse Performance July 31, July 31,
(Dollars in thousands) 2013 2012 2013 2012
Income (loss) from operations $11,427 $13,790 $19,270 $ (9,093)
Expense Adjustments:
Stock-based compensation expense 2,249 2,201 5,343 3,632
Amortization of acquisition-related intangibles 729 3,998 1,378 8,072
Compliance-related professional fees 370 149 806 13
Compliance-related compensation and other expenses 155 435 207 1,553
Impairment of property and equipment 5 14 43 36
Certain litigation settlements and related costs 1 (13) (23) (243)
Italian VAT refund recovery recorded within operating expenses (10,861)
Restructuring charges 2,633 427 6,854 1,107
Gain on sale of fixed asset (7) (18)
Other, net 567 (35) 857 (208)
Total expense adjustments 6,702 7,176 4,586 13,962
Comverse performance $18,129 $20,966 $23,856 $4,869
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse Comverse Comverse
BSS VAS Other Consolidated
(In thousands)
Three Months Ended July 31, 2013
Total revenue $68,463 $88,285 $13,005 $169,753
Total costs and expenses $59,277 $49,958 $49,091 $158,326
Income (loss) from operations $9,186 $38,327 $(36,086) $11,427
Computation of segment performance:
Segment revenue $68,463 $88,285 $13,005
Total costs and expenses $59,277 $49,958 $49,091
Segment expense adjustments:
Stock-based compensation expense 2,249
Amortization of acquisition-related intangibles 729
Compliance-related professional fees 370
Compliance-related compensation and other expenses 155
Impairment of property and equipment 3 2
Certain litigation settlements and related costs 1
Restructuring charges 2,633
Gain on sale of fixed assets 1 (1) (7)
Other, net 567
Segment expense adjustments 733 (1) 5,970
Segment expenses 58,544 49,959 43,121
Segment performance $9,919 $38,326 $(30,116)
Interest expense $— $— $(166) $ (166)
Depreciation and amortization $(1,548) $(1,245) $(1,953) $ (4,746)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse Comverse Comverse
BSS VAS Other Consolidated
(In thousands)
Three Months Ended July 31, 2012
Total revenue $69,052 $91,289 $10,885 $171,226
Total costs and expenses $54,420 $60,109 $42,907 $157,436
Income (loss) from operations $14,632 $31,180 $(32,022) $13,790
Computation of segment performance:
Segment revenue $69,052 $91,289 $10,885
Total costs and expenses $54,420 $60,109 $42,907
Segment expense adjustments:
Stock-based compensation expense 2,201
Amortization of acquisition-related intangibles 3,998
Compliance-related professional fees 149
Compliance-related compensation and other expenses 48 143 244
Impairment of property and equipment 1 13
Certain litigation settlements and related costs (13)
Restructuring charges 427
Other, net (35)
Segment expense adjustments 4,047 143 2,986
Segment expenses 50,373 59,966 39,921
Segment performance $18,679 $31,323 $(29,036)
Interest expense $— $— $(180) $(180)
Depreciation and amortization $(4,800) $(1,243) $(1,867) $(7,910)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse Comverse Comverse
BSS VAS Other Consolidated
(In thousands)
Six Months Ended July 31, 2013
Total revenue $140,128 $164,499 $20,944 $325,571
Total costs and expenses $115,889 $103,492 $86,920 $306,301
Income (loss) from operations $24,239 $61,007 $(65,976) $19,270
Computation of segment performance:
Segment revenue $140,128 $164,499 $20,944
Total costs and expenses $115,889 $103,492 $86,920
Segment expense adjustments:
Stock-based compensation expense 5,343
Amortization of acquisition-related intangibles 1,378
Compliance-related professional fees 806
Compliance-related compensation and other expenses 122 7 78
Impairment of property and equipment 29 1 13
Certain litigation settlements and related costs (23)
Italian VAT recovery recorded within operating expense (10,861)
Restructuring charges 6,854
Gain on sale of fixed assets 1 (1) (18)
Other, net 857
Segment expense adjustments 1,530 7 3,049
Segment expenses 114,359 103,485 83,871
Segment performance $25,769 $61,014 $(62,927)
Interest expense $— $— $(354) $(354)
Depreciation and amortization $(3,034) $(2,465) $(3,818) $(9,317)
COMVERSE, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(UNAUDITED)
Comverse Comverse Comverse
BSS VAS Other Consolidated
(In thousands)
Six Months Ended July 31, 2012
Total revenue $126,732 $157,211 $25,033 $308,976
Total costs and expenses $107,703 $110,191 $100,175 $318,069
Income (loss) from operations $19,029 $47,020 $(75,142) $(9,093)
Computation of segment performance:
Segment revenue $126,732 $157,211 $25,033
Total costs and expenses $107,703 $110,191 $100,175
Segment expense adjustments:
Stock-based compensation expense 3,632
Amortization of acquisition-related intangibles 8,072
Compliance-related professional fees 13
Compliance-related compensation and other expenses 678 916 (41)
Impairment of property and equipment 1 35
Certain litigation settlements and related costs (243)
Restructuring charges 1,107
Other, net (208)
Segment expense adjustments 8,751 916 4,295
Segment expenses 98,952 109,275 95,880
Segment performance $27,780 $47,936 $(70,847)
Interest expense $— $— $(376) $(376)
Depreciation and amortization $(9,663) $(2,444) $(3,848) $(15,955)

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

Source:Comverse, Inc.