EX-99.1 2 g97889exv99w1.htm EX-99.1 PRESS RELEASE DATED OCTOBER 27, 2005 EX-99.1 PRESS RELEASE DATED OCTOBER 27, 2005
 

Exhibit 99.1
FOR IMMEDIATE RELEASE
Contact:    John Mongelli
    Investor Relations
    (770) 752-6171
    John.Mongelli@choicepoint.com
ChoicePointÒ Reports Record Revenue in the Third Quarter of 2005
ALPHARETTA, Ga. — October 27, 2005 — ChoicePoint Inc. (NYSE: CPS) today reported strong third quarter total revenue growth of 16 percent compared to the third quarter of 2004. Third quarter total revenue for 2005 was $274.7 million. Earnings per share (“EPS”) for the third quarter was $0.43 which included a $0.03 per share dilutive effect of specific expenses related to the fraudulent data access previously disclosed. Excluding this charge in 2005, EPS would have been $0.46, a 7 percent increase over the comparable period of 2004. Cash flow from operating activities for the quarter was $51.0 million, and $167.4 million for the nine months ended September 30, 2005.
“We continue to see strong results from our businesses. This sustained level of operating performance has given us the resources and flexibility to initiate our first share repurchase program during the quarter,” noted Derek V. Smith, Chairman and Chief Executive Officer.
Chief Administrative Officer, Steven W. Surbaugh added, “The continued strength of our personal lines and workplace solutions units along with the significant turnaround in our government business drove our results this quarter. Given these trends and underlying business momentum we are seeing, we are well positioned to close out the year with excellent results”.
Financial Highlights — Third Quarter
•   Core or service revenue (total revenue less reimbursable expenses) increased 15 percent to $267.3 million for the quarter ended September 30, 2005 from $231.5 million for the same period of 2004. Internal revenue (core revenue less revenue from acquisitions) increased 7.6 percent over 2004, driven primarily by continued strong growth in our personal lines underwriting and background screening businesses. Third quarter total revenue increased 16 percent to $274.7 million in 2005 from $237.6 million in 2004.

 

 

ChoicePoint Earnings
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•   Operating income for the third quarter of 2005 was $65.0 million compared to $64.0 million for the same period of 2004. Excluding $4.0 million of other operating charges related to the fraudulent data access, operating income would have been $69.0 million for the third quarter of 2005.
 
•   In the third quarter of 2005, the Company recorded a pre-tax charge of $4.0 million ($2.5 million net of taxes) for specific legal expenses and other professional fees related to the fraudulent data access previously disclosed in our public filings.
 
•   The effective tax rate was 38.2% for the third quarter of 2005.
 
•   Cash flows from operating activities was $167.4 million for the nine months ended September 30, 2005 compared to $177.1 million for the same period in 2004, a decrease due primarily to approximately $10 million of incremental expenses paid in 2005 related to the fraudulent data access and the timing of quarterly tax payments. Excluding these items, cash flows from operating activities would have increased 11% for the nine months ended 2005. Capital expenditures were $50.9 million for the nine months ended September 30, 2005 compared to $38.7 million for the same period in the prior year. Net free cash flow (net cash provided by operations less capital expenditures) was $116.4 million for the nine months ended September 30, 2005, which compares to net free cash flow of $138.4 million for the same period in 2004.
 
•   In the third quarter, 978,100 shares were repurchased for $41.6 million at an average price of $42.51, leaving $208.4 million authorized in the Company’s buyback program.
 
•   Net debt (total debt less cash) at September 30, 2005, increased by $9.9 million from June 30, 2005 to $78.9 million, as the Company used its cash flow from operations to repurchase shares and fund a minority investment. The remaining debt capacity at September 30, 2005 under our committed financing lines is $416 million.
Operational Highlights
Insurance Services
•   Total revenue increased 17 percent to $106.0 million in the third quarter of 2005 compared to $90.9 million in the same period of the prior year, representing an internal revenue growth rate of 12.4 percent due primarily to strong unit growth and new product contributions in our personal lines underwriting business.

 

 

ChoicePoint Earnings
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•   Operating income increased 14 percent in Insurance Services to $58.0 million for the third quarter of 2005 compared with $50.7 million for the third quarter of 2004. Operating profit margin remained strong at 54.7% for the quarter.
Business Services
•   Third quarter total revenue increased 4 percent to $97.6 million in 2005 compared to $94.0 million in the prior year. Internal revenue growth was 3.8 percent for the third quarter of 2005, primarily due to strong contributions from our backgrounds, vital records and title and property lien search businesses which offset the impact of decreased revenue from our small business public filings customers.
 
•   Operating income in Business Services was $21.0 million for the third quarter of 2005, consistent with $21.1 million in the same period of the prior year.
Government Services
•   Total revenue increased 83 percent to $39.5 million in the third quarter of 2005 compared to $21.6 million in the third quarter of 2004, primarily due to strong performance at our i2 Limited unit which we acquired in the first quarter of 2005, increased revenues in our public filings searches and at our Bode DNA lab. Internal revenue grew 16.8 percent for the third quarter of 2005 over the same period in 2004.
 
•   Operating income in Government Services was $6.4 million for the third quarter of 2005, an increase of 35 percent from $4.7 million for the comparable period of 2004. Operating profit margin in Government Services for the third quarter was 16 percent due primarily to the revenue increases discussed above.
Marketing Services
•   Total third quarter revenue for the Marketing Services segment (which includes all of the Company’s revenue from reimbursable expenses) increased 3 percent to $30.6 million in 2005 from $29.7 million in 2004 due to the increase in reimbursables revenue. Marketing Services’ core revenue for the third quarter of 2005 was $23.1 million for 2005 compared to $23.6 million in 2004. Internal revenue declined 1.9 percent for the third quarter of 2005 compared to the same period in 2004.
 
•   Operating income in Marketing Services was $3.8 million for the third quarter of 2005, compared with $4.6 million for the same period of 2004. Third quarter 2005 operating profit margin, as a percentage of revenue without reimbursable expenses, was 17 percent (13 percent of total revenue).

 

 

ChoicePoint Earnings
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Outlook
Based on recent business trends, ChoicePoint expects full year 2005 core revenue growth in the 17 to 18 percent range and full year 2005 operating margins, excluding other operating charges, to be in the mid 25 percent to 26 percent range, depending on revenue growth and product mix.
Webcast
ChoicePoint’s third quarter results will be discussed in more detail on October 27, 2005, at 8:30 a.m. EDT via teleconference. The live audio Webcast of the call will be available on 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,

 

 

ChoicePoint Earnings
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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     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands, except per share data)   2005     2004     2005     2004  
Service revenue (a)
   $ 267,261     $ 231,466     $ 779,418     $ 659,551  
Reimbursable expenses per EITF 01-14 (b)
     7,480       6,149       20,646       26,700  
 
                        
Total revenue
     274,741       237,615       800,064       686,251  
 
                        
 
                                
Cost of revenue
    139,183       118,750       410,103       346,049  
Reimbursable expenses
    7,480       6,149       20,646       26,700  
Selling, general and administrative expenses
     59,095       48,680       168,939       135,704  
Other operating charges (c)
     4,006       —       15,458       —  
 
                        
Total costs and expenses
    209,764       173,579       615,146       508,453  
 
                        
Operating income
    64,977       64,036       184,918       177,798  
Interest expense
     925       885       3,247       2,222  
 
                        
Income before income taxes
     64,052       63,151       181,671       175,576  
Provision for income taxes (e)
    24,468       23,998       68,699       66,838  
 
                        
Net income
   $ 39,584     $ 39,153     $ 112,972     $ 108,738  
 
                        
 
                                
EPS — diluted
   $ 0.43     $ 0.43     $ 1.23     $ 1.19  
 
                        
Weighted average shares — diluted
     91,934       91,542       91,980       91,100  
 
                        
 
                                
Operating Income .
   $ 64,977     $ 64,036     $ 184,918     $ 177,798  
Depreciation and amortization expense
     19,315       16,572       56,886       45,733  
 
                        
EBITDA (d)
  $ 84,292     $ 80,608     $ 241,804     $ 223,531  
 
                        
Reconciliation to financial information excluding other operating charges (c)
                                 
(Unaudited)   Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Dollars in thousands, except per share data)   2005     2004     2005     2004  
Operating income.
   $ 64,977     $ 64,036     $ 184,918     $ 177,798  
Add back: other operating charges (c)
    4,006       —       15,458       —  
 
                        
Operating income before other operating charges
    68,983       64,036       200,376       177,798  
Interest expense
     925       885       3,247       2,222  
 
                        
Income before income taxes & other operating charges
    68,058       63,151       197,129       175,576  
Provision for income taxes (e)
     25,998       23,998       74,604       66,838  
 
                        
Income before other operating charges
  $ 42,060     $ 39,153     $ 122,525     $ 108,738  
 
                        
Effective tax rate (e)
     38.2 %     38.0 %     37.8 %     38.1 %
Earnings per share — diluted excluding other operating charges
   $ 0.46     $ 0.43     $ 1.33     $ 1.19  
EBITDA excluding other operating charges (d)
   $ 88,298     $ 80,608     $ 257,262     $ 223,531  

 

 

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. Third quarter pass-through expenses totaled $186.6 million in 2005 and $164.1 million in 2004. Pass-through expenses for the nine months ended September 30 were $554.1 million in 2005 and $487.0 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 and $4.0 million in the third quarter of 2005 related to specific expenses of the fraudulent data access that has been previously disclosed. Approximately $2.0 million of the $15.5 million total charges through September 30, 2005 were for communications to, and credit reports and credit monitoring for, individuals receiving notice of the fraudulent data access and approximately $13.5 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 nine months ended 2005 reflects a $700,000 benefit from the completion of a state tax audit in the second quarter of 2005.
                 
(Unaudited)   Nine Months ended  
    September 30,  
(Dollars in thousands)   2005     2004  
Cash Flow Highlights
                
Income from operations
   $ 112,972     $ 108,738  
Depreciation & amortization
    56,886       45,733  
Changes in assets & liabilities and other
    (2,495 )     22,636  
 
            
Net cash provided by operations
   $ 167,363     $ 177,107  
Acquisitions & investments, net of cash acquired
   $ (119,149 )   $ (197,274 )
Capital expenditures
     (50,930 )     (38,698 )
 
            
Net cash used in investing activities
  $ (170,079 )   $ (235,972 )
Net cash provided by financing activities
   $ 7,152     $ 37,454  
         
Key Balance Sheet Highlights   9/30/05  
Total Debt
   $ 84,270  
Cash
    5,377  
 
      
Debt (net of cash)
   $ 78,893  
Shareholders’ Equity
  $ 1,074,133  
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 %
 
                              

 

 

ChoicePoint Earnings
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ChoicePoint Inc.
2005 Segment Results
                         
    Q1 2005     Q2 2005     Q3 2005  
Revenue
                        
Insurance Services
   $ 99,727     $ 102,097     $ 106,042  
Business Services
     93,823       96,836       97,579  
Government Services
     35,293       36,941       39,548  
Marketing Services
     23,099       23,018       23,138  
Royalty
     797       526       954  
 
                  
Service Revenue
     252,739       259,418       267,261  
Reimbursable Expenses per EITF 01-14
     6,543       6,623       7,480  
 
                  
Total Revenue
   $ 259,282     $ 266,041     $ 274,741  
 
                  
Operating Income
                        
Insurance Services
   $ 54,262     $ 55,266     $ 57,981  
Business Services
     21,222       20,406       20,975  
Government Services
     5,711       3,418       6,366  
Marketing Services
     4,257       3,661       3,840  
Royalty
     770       325       506  
Corporate & Shared Expenses (a)
     (19,722 )     (18,183 )     (20,685 )
 
                  
Operating Income before other charges (c)
   $ 66,500     $ 64,893     $ 68,983  
 
                  
Other operating charges (c)
     (5,412 )     (6,040 )     (4,006 )
 
                  
Operating Income
   $ 61,088     $ 58,853     $ 64,977  
 
                  
Core Revenue Growth Rates
                        
Insurance Services
     15.0 %     15.8 %     16.7 %
Business Services
     23.5 %     10.6 %     3.8 %
Government Services
     98.9 %     57.0 %     83.2 %
Marketing Services
     1.3 %     -0.9 %     -1.9 %
 
                  
Total operations
     23.7 %     16.0 %     15.5 %
 
                  
Internal Revenue Growth Rates
                        
Insurance Services
     11.8 %     12.7 %     12.4 %
Business Services
     5.0 %     4.3 %     3.8 %
Government Services
     3.1 %     7.0 %     16.8 %
Marketing Services
     1.3 %     -0.9 %     -1.9 %
 
                  
Total operations
     7.1 %     7.0 %     7.6 %
 
                  
Operating Profit Margins
                        
Insurance Services
     54.4 %     54.1 %     54.7 %
Business Services
     22.6 %     21.1 %     21.5 %
Government Services
     16.2 %     9.3 %     16.1 %
Marketing Services (b)
     18.4 %     15.9 %     16.6 %
Operating income before other operating charges, percentage of service revenue (c)
     26.3 %     25.0 %     25.8 %
 
                  
Operating income as a percentage of total revenue
     23.6 %     22.1 %     23.7 %
 
                  
(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%, 12.4%, and 12.5% for the first, second, and third 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. See note (c) under Financial Highlights above.
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