EX-99.1 2 g96355exv99w1.htm EX-99.1 PRESS RELEASE OF CHOICEPOINT DATED JULY 20,2005 EX-99.1 PRESS RELEASE OF CHOICEPOINT DATED JULY 20
 

Exhibit 99.1

FOR IMMEDIATE RELEASE

     
Contact:
  John Mongelli
 
  Investor Relations
 
  (770) 752-6171

ChoicePointÒ Reports Record Revenue in the Second Quarter of 2005

ALPHARETTA, Ga. – July 20, 2005 – ChoicePoint Inc. (NYSE: CPS), today reported second quarter total revenue growth of 15 percent compared to 2004. Second quarter total revenue for 2005 was $266.0 million. Earnings per share (“EPS”) for the second quarter was $0.40 which included a $0.04 per share dilutive effect of specific expenses related to the fraudulent data access previously disclosed. Excluding this charge in 2005, EPS would have been $0.44, a 10 percent increase over the comparable period of 2004.

“I am extremely pleased with the continued revenue growth momentum this quarter,” said Derek V. Smith, Chairman and CEO. “Additionally, we implemented key changes that reduced the risk of our business model and reinforced our leadership as a responsible information company.”

Chief Financial Officer Steven W. Surbaugh added, “We are continuing to see strong operating trends in our major businesses, led by our personal lines unit which delivered their best internal revenue growth since 2002. Additionally, cash flows remain outstanding as we benefit from high levels of demand for our products and the financial strength of our business.”

Financial Highlights – Second Quarter

    Core or service revenue (total revenue less reimbursable expenses) increased 16 percent to $259.4 million for the quarter ended June 30, 2005 from $223.7 million for the same period of 2004. Internal revenue (core revenue less revenue from acquisitions) increased 7 percent over 2004, driven primarily by continued strong growth in our personal lines underwriting and background screening businesses. Second quarter total revenue increased 15 percent to $266.0 million in 2005 from $231.4 million in 2004.
 
    Operating income for the second quarter of 2005 was $58.9 million compared to $59.5 million for 2004. Excluding $6.0 million of other operating charges related to the

 


 

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      fraudulent data access event, operating income would have been $64.9 million for the second quarter of 2005.
 
    In the second quarter of 2005, the Company recorded a pre-tax charge of $6.0 million ($3.7 million net of taxes) for specific legal expenses and other professional fees related to the fraudulent data access previously disclosed in our prior public filings.
 
    The lower effective tax rate for the second quarter of 2005 reflects a $700,000 benefit from the completion of a state tax audit.
 
    Cash flows from operating activities increased 14 percent to $116.3 million for the six months ended June 30, 2005 from $102.1 million for the comparable period in 2004. Capital expenditures were $34.2 million for the six months ended June 30, 2005 compared to $24.4 million for the same period in the prior year. Net free cash flow (net cash provided by operations less capital expenditures) was $82.1 million for the six months ended June 30, 2005, which compares to net free cash flow of $77.7 million for the same period in 2004.
 
    Net debt (total debt less cash) at June 30, 2005, decreased by $34.9 million from March 31, 2005 to $69.0 million, due to strong cash flows from operations. The remaining debt capacity at June 30, 2005 under our committed financing lines is $430 million.

Operational Highlights

Insurance Services

  Total revenue increased 16 percent to $102.1 million in the second quarter of 2005 compared to $88.1 million in the prior year, representing an internal revenue growth rate of 13 percent due primarily to strong unit growth and new product contributions in our personal lines underwriting business.
 
  Operating income increased 14 percent in Insurance Services to $55.3 million for the second quarter of 2005 compared with $48.4 million for the second quarter of 2004.

Business Services

  Second quarter total revenue increased 11 percent to $96.8 million in 2005 compared to $87.5 million in the prior year. Internal revenue growth was 4 percent for the second quarter of 2005, primarily due to strong contributions from our vital records, backgrounds and tenant screening businesses which offset the impact of decreased revenue from our small business public filings customers.

 


 

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  Operating income in Business Services was $20.4 million for the second quarter of 2005 resulting in an operating profit margin of 21.1 percent and a 20 percent increase from $17.1 million in the same period of the prior year.

Government Services

  Total revenue increased 57 percent to $36.9 million in the second quarter of 2005 compared to $23.5 million in the second quarter of 2004, primarily due to the acquisition of i2 Limited in the first quarter of 2005 and increased revenue at our Bode DNA lab. Internal revenue grew 7 percent for the second quarter of 2005 over the same period in 2004.
 
  Operating income in Government Services was $3.4 million for the second quarter of 2005. Operating profit margin in Government Services for the second quarter was 9.3 percent due to changes in the business mix, new product development, integration expenses, and the expected impact of lower margins in 2005 relating to the i2 acquisition.

Marketing Services

  Marketing Services’ core revenue for the second quarter remained consistent with 2004 by recording revenue of $23.0 million for 2005 compared to $23.2 million in 2004. Total second quarter revenue for the Marketing Services segment (which includes all of the Company’s revenue from reimbursable expenses) decreased 4 percent from $30.9 million in 2004 to $29.6 million in 2005 due to the decrease in reimbursables revenue. Internal revenue declined 1 percent for the second quarter of 2005.
 
  Operating income in Marketing Services was $3.7 million for the second quarter of 2005, compared with $4.4 million for the same period of 2004. Second quarter 2005 operating profit margin, as a percentage of revenue without reimbursable expenses, was 15.9 percent (12.4 percent of total revenue) due primarily to changes in product mix.

Outlook

Based on recent business trends, ChoicePoint expects full year 2005 core revenue growth in the 16 to 19 percent range and full year 2005 operating margins, excluding other operating charges, to be in the mid 25 percent to low 26 percent range, depending on revenue growth and product mix.

Webcast

ChoicePoint’s second quarter results will be discussed in more detail on July 20, 2005, at 8:30 a.m. EDT via teleconference. The live audio Webcast of the call will be available on

 


 

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ChoicePoint’s Web site at www.choicepoint.com. There will also be a replay of the call available beginning at approximately 10:00 a.m. EDT at the same Web address.

About ChoicePoint

ChoicePoint Inc. (NYSE: CPS) is the leading provider of identification and credential verification services for making smarter decisions in a world challenged by increased risks. Serving the needs of business, government, non-profit organizations and individuals, ChoicePoint works to create a safer and more secure society through the responsible use of information while working diligently to protect personal privacy. For more information about ChoicePoint, visit the Company’s Web site at www.choicepoint.com.

Forward-Looking Statements

Certain written statements in this release and oral statements made by or on behalf of the Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as “should result,” “are expected to,” “we anticipate,” “we estimate,” “we project,” or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, but are not limited to, the following important factors: the results of our ongoing review of fraudulent data access and other events, the impact of our decision to discontinue certain services, the results of our re-credentialing of customer accounts, the results of any litigation or government proceedings, demand for the Company’s services, product development, maintaining acceptable margins, maintaining our data supply, maintaining secure systems including personal privacy systems, ability to minimize system interruptions, ability to control costs, the impact of federal, state and local regulatory requirements on the Company’s business, specifically the direct marketing and public filings markets and privacy matters affecting the Company and any federal or state legislative responses to identify theft concerns, the impact of competition and customer consolidations, ability to continue our long-term business strategy including growth through acquisition, ability to attract and retain qualified personnel, and the uncertainty of economic conditions in general. Additional information concerning these and other risks and uncertainties is contained in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Readers are cautioned not to place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made, and the Company undertakes no obligation to publicly update these statements based on events that may occur after the date of this press release.

 


 

ChoicePoint Earnings
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ChoicePoint Inc.
Financial Highlights

                                 
(Unaudited)   Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(Dollars in thousands, except per share data)   2005     2004     2005     2004  
Service revenue (a)
  $ 259,418     $ 223,700     $ 512,157     $ 428,085  
Reimbursable expenses per EITF 01-14 (b)
    6,623       7,691       13,166       20,551  
 
                       
Total revenue
    266,041       231,391       525,323       448,636  
 
                       
Cost of revenue
    139,533       116,528       270,920       227,299  
Reimbursable expenses
    6,623       7,691       13,166       20,551  
Selling, general and administrative expenses
    54,992       47,681       109,844       87,024  
Other operating charges (c)
    6,040             11,452        
 
                       
Total costs and expenses
    207,188       171,900       405,382       334,874  
 
                       
Operating income
    58,853       59,491       119,941       113,762  
Interest expense
    1,056       811       2,322       1,337  
 
                       
Income before income taxes
    57,797       58,680       117,619       112,425  
Provision for income taxes (e)
    21,379       22,357       44,231       42,840  
 
                       
Net income
  $ 36,418     $ 36,323     $ 73,388     $ 69,585  
 
                       
EPS - diluted
  $ 0.40     $ 0.40     $ 0.80     $ 0.77  
 
                       
Weighted average shares – diluted
    91,702       91,282       91,949       90,847  
 
                       
Operating Income
  $ 58,853     $ 59,491     $ 119,941     $ 113,762  
Depreciation and amortization expense
    18,884       15,626       37,571       29,161  
 
                       
EBITDA (d)
  $ 77,737     $ 75,117     $ 157,512     $ 142,923  
 
                       

Reconciliation to financial information excluding other operating charges (c)

                                 
    Three Months Ended     Six Months Ended  
(Unaudited)   June 30,     June 30,  
(Dollars in thousands, except per share data)   2005     2004     2005     2004  
Operating income
  $ 58,853     $ 59,491     $ 119,941     $ 113,762  
Add back: other operating charges (c)
    6,040             11,452        
 
                       
Operating income before other operating charges
    64,893       59,491       131,393       113,762  
Interest expense
    1,056       811       2,322       1,337  
 
                       
Income before income taxes & other operating charges
    63,837       58,680       129,071       112,425  
Provision for income taxes (e)
    23,686       22,357       48,606       42,840  
 
                       
Income before other operating charges
  $ 40,151     $ 36,323     $ 80,465     $ 69,585  
 
                       
Effective tax rate (e)
    37.1 %     38.1 %     37.7 %     38.1 %
Earnings per share - diluted excluding other operating charges
  $ 0.44     $ 0.40     $ 0.88     $ 0.77  
EBITDA excluding other operating charges (d)
  $ 83,777     $ 75,117     $ 168,964     $ 142,923  

 


 

ChoicePoint Earnings
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ChoicePoint Inc.
Financial Highlights (continued)

(a)   Service revenue excludes revenue from reimbursable expenses (see (b) below). The Company uses service revenue (also referred to as core revenue) to measure its continuing operations without the effect of reimbursable expenses.
 
(b)   Reimbursable expenses per Emerging Issues Task Force (“EITF”) 01-14 represent out-of-pocket expenses fully reimbursed by ChoicePoint’s customers and recorded as revenues and expenses in accordance with EITF 01-14 “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred”. As these expenses are fully reimbursed, without mark-up, by our customers and in a majority of cases prepaid by the customers, there is no impact on operating income, net income, EPS, cash flows or the balance sheet. In addition, management excludes these expenses from its revenue analysis for operational management and incentive purposes; therefore, we have separately identified these expenses and excluded their impact in our calculations of core revenue, internal revenue growth and operating margins. Other pass-through expenses such as motor vehicle registry fees will continue to be accounted for on a net basis and, as such, excluded from revenues in our financial statements in accordance with generally accepted accounting principles. Second quarter pass-through expenses totaled $186.7 million in 2005 and $160.6 million in 2004. Pass-through expenses for the six months ended June 30 were $367.5 million in 2005 and $322.9 million in 2004.
 
(c)   The Company recorded other operating charges of $5.4 million in the first quarter of 2005 and $6.0 million in the second quarter of 2005 related to specific expenses of the fraudulent data access event that has been previously disclosed. Approximately $2.0 million of the $11.4 million total charges through June 30, 2005 were for communications to, and credit reports and credit monitoring for, individuals receiving notice of the fraudulent data access and approximately $9.4 million of legal expenses and other professional fees. The Company has presented this analysis with and without these items because they represent costs that management excludes in its assessments of operating results of the business.
 
(d)   Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA before other operating charges (see note c) are not presented as substitutes for operating income, net income or cash flows from operating activities. The Company has included EBITDA and EBITDA before other operating charges (which are not measures of financial performance under generally accepted accounting principles) because such data is used by the Company to compare its performance to its competitors and to manage its on-going business and is also used by certain investors to analyze and compare companies on the basis of operating performance.
 
(e)   The lower effective tax rate for the second quarter of 2005 reflects a $700,000 benefit from the completion of a state tax audit.

                 
(Unaudited)   Six Months ended  
    June 30,  
(Dollars in thousands)   2005     2004  
 
               
Cash Flow Highlights
               
Income from operations
  $ 73,388     $ 69,585  
Depreciation & amortization
    37,571       29,161  
Changes in assets & liabilities and other
    5,370       3,346  
 
           
Net cash provided by operations
  $ 116,329     $ 102,092  
Acquisitions & investments, net of cash acquired
  $ (108,091 )   $ (194,891 )
Capital expenditures
    (34,246 )     (24,422 )
 
           
Net cash used in investing activities
  $ (142,337 )   $ (219,313 )
Net cash provided by financing activities
  $ 25,971     $ 95,833  
 
               
Key Balance Sheet Highlights
    6/30/05          
 
             
 
               
Total Debt
  $ 70,083          
Cash
    1,069          
 
             
Debt (net of cash)
  $ 69,014          
Shareholders’ Equity
  $ 1,067,918          
Days sales outstanding (adjusted for pass-through expenses)
  42 days          

 


 

ChoicePoint Earnings
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ChoicePoint Inc.
2004 Segment Results

                                         
    Q1 2004     Q2 2004     Q3 2004     Q4 2004     Total 2004  
Revenue
                                       
Insurance Services
  $ 86,727     $ 88,129     $ 90,880     $ 86,989     $ 352,725  
Business Services
    75,941       87,547       94,041       92,352       349,881  
Government Services
    17,741       23,530       21,590       21,073       83,934  
Marketing Services
    22,811       23,224       23,585       23,769       93,389  
Royalty
    1,165       1,270       1,370       699       4,504  
 
                             
Service Revenue
    204,385       223,700       231,466       224,882       884,433  
Reimbursable Expenses per EITF 01-14
    12,860       7,691       6,149       7,580       34,280  
 
                             
Total Revenue
  $ 217,245     $ 231,391     $ 237,615     $ 232,462     $ 918,713  
 
                             
 
                                       
Operating Income
                                       
Insurance Services
  $ 47,260     $ 48,401     $ 50,714     $ 49,340     $ 195,715  
Business Services
    14,357       17,052       21,084       20,945       73,438  
Government Services
    4,114       7,275       4,726       5,349       21,464  
Marketing Services
    4,287       4,408       4,583       5,373       18,651  
Royalty
    204       661       798       399       2,062  
Corporate & Shared Expenses (a)
    (15,951 )     (18,306 )     (17,869 )     (17,426 )     (69,552 )
 
                             
Operating Income
  $ 54,271     $ 59,491     $ 64,036     $ 63,980     $ 241,778  
 
                             
 
                                       
Core Revenue Growth Rates
                                       
Insurance Services
    13.9 %     13.1 %     16.4 %     13.0 %     14.1 %
Business Services
    18.9 %     26.9 %     30.5 %     29.7 %     26.7 %
Government Services
    3.5 %     59.2 %     43.8 %     28.4 %     32.5 %
Marketing Services
    -10.8 %     -9.5 %     4.2 %     4.4 %     -3.4 %
 
Total operations
    11.1 %     18.5 %     22.4 %     19.3 %     17.9 %
 
 
                                       
Internal Revenue Growth Rates
                                       
Insurance Services
    12.2 %     11.4 %     14.8 %     10.3 %     12.2 %
Business Services
    13.3 %     9.2 %     8.1 %     11.0 %     10.3 %
Government Services
    -12.8 %     6.3 %     -0.8 %     -5.9 %     -3.7 %
Marketing Services
    -10.8 %     -9.5 %     4.2 %     4.4 %     -3.4 %
 
Total operations
    6.9 %     7.2 %     9.7 %     8.2 %     8.0 %
 
 
                                       
Operating Profit Margins
                                       
Insurance Services
    54.5 %     54.9 %     55.8 %     56.7 %     55.5 %
Business Services
    18.9 %     19.5 %     22.4 %     22.7 %     21.0 %
Government Services
    23.2 %     30.9 %     21.9 %     25.4 %     25.6 %
Marketing Services (b)
    18.8 %     19.0 %     19.4 %     22.6 %     20.0 %
 
                                       
 
Operating income as a percentage of service revenue
    26.6 %     26.6 %     27.7 %     28.5 %     27.3 %
 
Operating income as a percentage of total revenue
    25.0 %     25.7 %     26.9 %     27.5 %     26.3 %
 
 
(a)   Corporate and shared expenses represent costs of support functions, research and development initiatives, incentives and profit sharing that benefit all segments.
 
(b)   Represents operating income as a percentage of service revenue. Operating profit margin as a percentage of total revenue was 12.0%, 14.3%, 15.4% and 17.1% for the first, second, third and fourth quarters of 2004, respectively, 14.6% for the total year 2004, and 14.4% and 12.4% for the first and second quarters of 2005, respectively.
 
(c)   The Company has presented analysis above with and without these items because they represent costs that management excludes in its assessments of operating results.

 


 

ChoicePoint Earnings
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ChoicePoint Inc.
2005 Segment Results

                 
    Q1 2005     Q2 2005  
Revenue
               
Insurance Services
  $ 99,727     $ 102,097  
Business Services
    93,823       96,836  
Government Services
    35,293       36,941  
Marketing Services
    23,099       23,018  
Royalty
    797       526  
 
           
Service Revenue
    252,739       259,418  
Reimbursable Expenses per EITF 01-14
    6,543       6,623  
 
           
Total Revenue
  $ 259,282     $ 266,041  
 
           
 
               
Operating Income
               
Insurance Services
  $ 54,262     $ 55,266  
Business Services
    21,222       20,406  
Government Services
    5,711       3,418  
Marketing Services
    4,257       3,661  
Royalty
    770       325  
Corporate & Shared Expenses (a)
    (19,722 )     (18,183 )
 
           
Operating Income before other charges (c)
  $ 66,500     $ 64,893  
 
           
Other operating charges (c)
    (5,412 )     (6,040 )
 
           
Operating Income
  $ 61,088     $ 58,853  
 
           
 
               
Core Revenue Growth Rates
               
Insurance Services
    15.0 %     15.8 %
Business Services
    23.5 %     10.6 %
Government Services
    98.9 %     57.0 %
Marketing Services
    1.3 %     -0.9 %
 
Total operations
    23.7 %     16.0 %
 
 
               
Internal Revenue Growth Rates
               
Insurance Services
    11.8 %     12.7 %
Business Services
    5.0 %     4.3 %
Government Services
    3.1 %     7.0 %
Marketing Services
    1.3 %     -0.9 %
 
Total operations
    7.1 %     7.0 %
 
 
               
Operating Profit Margins
               
Insurance Services
    54.4 %     54.1 %
Business Services
    22.6 %     21.1 %
Government Services
    16.2 %     9.3 %
Marketing Services (b)
    18.4 %     15.9 %
 
Operating income before other operating charges, percentage of service revenue (c)
    26.3 %     25.0 %
 
Operating income as a percentage of total revenue
    23.6 %     22.1 %
 

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