For Immediate Release

Billing Services Group Limited

("BSG" or the "Company")

Audited results for the year ended December 31, 2018

EXPENSE CONTROL LEADS TO STABLE EBITDA

(March 29, 2019) San Antonio, Texas, USA - BSG, a leading provider of telecommunications clearing and financial settlement products, Wi-Fi data solutions and verification services, today announces its audited results for the year ended December 31, 2018.

Financial Highlights  

(All amounts in US$)                                               

⁽¹⁾      EBITDA is computed as earnings before interest, income taxes, depreciation, amortization and other non-cash and nonrecurring income or expense items.  EBITDA is not a recognized measure under generally accepted accounting principles (GAAP). 

·    Experienced $5.0 million decline in revenue ($16.1 million vs. $21.1 million in 2017) due largely to discontinuation of third-party billing by Verizon, a large local exchange carrier (LEC)

·    Improved gross margin by 3.8 percentage points (60.4% vs. 56.6% in 2017)

·    Reduced operating expenses by $2.0 million ($9.0 million vs. $11.0 million in 2017)

·    Generated $0.8 million of EBITDA (2017:  $0.9 million)

·    Recognized $10.0 million of non-cash impairment charges against goodwill (2017:  $15.3 million)

·    Distributed $1.2 million in cash dividends

·    Ended year with $9.2 million of cash (2017:  $11.5 million)

·    Ended year with $6.6 million of working capital (2017:  $5.9 million)

BSG Wireless and Third Party Verification ("TPV") Operational Highlights

·    Renewed our hub and WLDS contract with AT&T with new terms that increase monthly revenue potential

·    Renegotiated our hub and mobile applications contracts with Comcast to increase the revenue opportunity

·    Signed a new hub contract with Spectrum (Charter)

·    Reduced expenses at BSG Wireless by $1.7 million on an annualized basis

·    Reduced costs and improved stability by replacing the legacy UK data center with new cloud infrastructure

·    Renewed our contract with a national cable company, including additional TPV volume in new markets

·    Launched new TPV markets with Constellation Energy

·    Increased both TPV volumes and revenues with Direct Energy

Current Trading and Strategy

·    In 2016, the Company initiated a strategic review to assist the Board in determining the future composition of the group, including capital structure and business lines. There have been four material actions taken as a result of the review:

·    Completed a $5.0 million cash tender offer in December 2017

·    Engaged investment banks and initiated discussions to sell BSG Wireless in 2017

·    Paid a $1.2 million cash dividend in July 2018

·    Renewed discussions with possible buyers for all or parts of the business in 2018

·    Following a sale of any portion of the group's businesses, the Board will consider further cash distributions and other actions with respect to any remaining assets or business lines.   

·    Trading for the year ended December 31, 2018 was in line with the Board's expectations and consistent with the recent trading conditions experienced by the Company.

·    During the second half of 2018, the Company recognized $10.0 million of non-cash impairment charges relating to goodwill recorded in its wireline billing and clearing business and its third-party verification business.  Goodwill impairment charges during 2018 eliminated all goodwill recorded on the Company's balance sheet. 

·    The Company will not provide guidance on projected future financial performance at this time. 

Commenting on the results, Denham H.N. Eke and Jason R. Wolff, Non-Executive Co-Chairmen, said: 

"The 2018 results demonstrate both the Company's disciplined response to challenging circumstances and the resiliency of its business model.  The $0.8 million of EBITDA generated during the year enabled the Company to pay $1.2 million of cash dividends and maintain a strong balance sheet."

INQUIRIES: 

Billing Services Group Limited                     +1 210 949 7000

Norman M. Phipps

finnCap Limited                                             +44 (0) 20 7220 0500

Stuart Andrews/Scott Mathieson

About BSG:

BSG's headquarters is located in San Antonio, Texas, USA.  The Company's shares are traded on the London Stock Exchange (AIM:  BILL).  For more information on BSG, visit (www.bsgclearing.com).

Chief Executive's Statement

Our 2018 financial performance reflects the resilience of our business model.  The Company generated $0.8 million of EBITDA, in line with 2017 EBITDA of $0.9 million, on revenues which declined by $5.0 million.  We distributed $1.2 million in cash dividends and ended the year with $9.2 million in cash and $6.6 million of working capital.

Financial performance

Proactive measures allowed the Company to maintain positive EBITDA despite a 24% decline in revenues. 

The sizable decrease in revenues was expected.  As announced in May 2017, Verizon withdrew from third-party billing services effective January 1, 2018.  Verizon's action paralleled AT&T's withdrawal effective in December 2016. 

To lessen the earnings effect from Verizon's discontinuation of third-party billing, we reduced operating expenses by $2.0 million.  Much of this was accomplished through the realignment of BSG Wireless, our Wi-Fi data solutions business.  Specifically, we moved a portion of  sales, data management, accounting and financial functions from the UK to the US.  The realignment resulted in a substantial reduction in compensation and other expenses.  The Company's gross margin concurrently improved by 3.8 percentage points, largely as a result of a mix of revenues favoring higher margin services. 

BSG's $9.4 million pre-tax loss in 2018 largely reflects $10.0 million of non-cash impairment charges to goodwill.  The impairment charges related to our wireline billing and clearing business and our third-party verification business.  During 2017, the Company had partially written down the goodwill value carried in both businesses.  The additional impairment charges during 2018 eliminated all goodwill value carried in both businesses. 

Business lines

BSG's core business, a billing and clearing service for wireline phone transactions, is far smaller than it was a decade ago because of an unfavorable secular trend in wireline phone usage and the more recent withdrawals of AT&T and Verizon from third-party billing.  Scale has been the historically essential ingredient to financial success in the business, because major components of operating costs are largely fixed.  The erosion over time of transaction volume has extensively affected the profitability of the business.

We have taken several actions aimed to ensure the viability of the business.  In 2016, for example, we introduced a direct billing service under which BSG submits invoices and collects funds directly from consumers, rather than bill through LECs.  The direct billing service is a good fit, because it operates efficiently using the Company's third-party billing platform to perform all critical data management functions.

In our TPV business, branded as VoiceLog, we independently confirm transactions mostly for utility services, cable/telecommunication companies and healthcare providers in the US.  The business is growing as we add high-volume customers. 

Our wireless business (BSG Wireless) provides Wi-Fi data clearing services to wireless network operators in the US and Europe.  As discussed above, we made substantial expense reductions within the operation during 2018.

Strategic Review

In 2016, the Company initiated a strategic review to assist the Board in determining the future composition of the group, including capital structure and business lines.  The following are the most visible actions taken to date in connection with the strategic review:

·    2017    Engaged in discussions with possible acquirers of BSG Wireless

·    2017    Completed a $5.0 million tender offer

·    2018    Distributed $1.2 million in a cash dividend

·    2018    Renewed discussions with possible buyers for all or parts of the business

Going Forward

Our pursuit of strategic objectives is not diminishing our focus on the fundamentals of the  business lines.  We are endeavouring to maximize cash flow through better pricing, new sources of revenue, expense control and opportunities to leverage the billing platform.  The Board will remain focused on the future composition of the group and the optimization of capital allocation. 

In light of the potentially significant changes in the business, we will not provide guidance on  future financial performance. 

Our Board and Employees

We have a small Board--two non-executive directors (who serve as Co-Chairmen) and me.  The three of us own (or represent parties who own) approximately 55% of shares outstanding.  For that reason, shareholder interests are of paramount importance to all three of us.  The Co-Chairmen are highly engaged in strategic decisions.  Their insights and guidance have added value for shareholders and management.

It would be impossible for me to overstate the dedication and innovation of our employees.  They thoroughly understand the subtleties of all our business services.  They collaborate and implement changes with extraordinary teamwork and precision.  They have been able to make operations run smoothly, even under the strain of lower headcount and the ever-increasing complexity of our businesses.  To them, I extend my heartfelt thanks.

Sincerely,

Norman M. Phipps

Chief Executive Officer   

FINANCIAL REVIEW

Financial Review of the Year Ended December 31, 2018

The Company's audited results for the year ended December 31, 2018 are compared against the year ended December 31, 2017 in the accompanying consolidated financial statements.  BSG's consolidated financial statements are prepared in conformity with United States GAAP.

Certain Terms

Revenues.  Revenues are derived primarily from fees charged to wireline and wireless service providers for data clearing, financial settlement, information management, payment and financial risk management, third-party verification and customer service functions.  During 2016, the Company introduced a direct billing service under which end-user consumers are invoiced directly by the Company, rather than through LECs as third-party billers.   Revenue recognized under third-party billing includes the Company's service fees plus amounts necessary to compensate the LECs for their third-party billing services.  Revenue for direct billing does not include any components other than the Company's service fees.

Cost of Services and Gross Profit.  Cost of services arises primarily in the Company's wireline billing and clearing business.  Cost of services in the clearinghouse business includes billing and collection fees charged by LECs and other service providers for payment processing.  Such fees are assessed for each record submitted and for each bill rendered to end-user consumers.  BSG charges its customers a negotiated fee for billing and collection services.  Accordingly, gross profit is generally dependent upon transaction volume, processing fees charged per transaction and any differential between the fees charged to customers by BSG and the related fees charged to BSG by LECs and other service providers.

Operating Expenses.  Operating expenses include all selling, marketing, customer service, facilities and administrative costs (including payroll and related expenses) incurred in support of operations, substantially all of which are settled through the payment of cash.

Depreciation and Amortization.  Depreciation expense applies to software, furniture and fixtures, telecommunications and computer equipment.  Amortization expense relates to definite-lived intangible assets that are amortized in accordance with Accounting Standards Codification (ASC) 350, Intangibles - Goodwill and Other.  These assets consist of contracts with customers and LECs.  Assets are depreciated or amortized, as applicable, over their respective useful lives. 

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).  Earnings before interest, income taxes, depreciation and amortization, a non-GAAP metric, is a measurement of profitability often used by investors and lenders.  The computation of EBITDA also excludes other non-cash and nonrecurring items as additions or deductions to earnings.

Third-Party Payables.  Third-party payables include amounts owed to customers in the ordinary course of clearinghouse activities and additional amounts maintained as reserves for retrospective charges from LECs and other parties.  In its clearinghouse business, the Company aggregates call records received from its customers.  It then submits the call records either to (i) LECs for billing to end-user consumers; or (ii) end-user consumers.  The Company collects funds from LECs and directly billed end-user consumers each day.

Under normal circumstances, funds collected from LECs are distributed to the Company's customers approximately ten days after receipt, under weekly settlement protocols. The Company withholds a portion of the funds received from LECs to pay (i) the Company's processing fees, (ii) billing and collection fees of LECs, (iii) sales and other taxes paid by the Company and (iv) an amount deemed necessary to serve as a reserve against retrospective charges from LECs.

Funds collected from directly billed end-user consumers are credited to the Company's customers when received.  The Company withholds a portion of the funds received from end-user consumers to pay (i) the Company's processing fees, (ii) sales and other taxes paid by the Company and (iii) an amount deemed necessary to serve as a reserve against retrospective charges from payment processors or other parties. 

When LECs, payment processors and other parties make payments to the Company, they withhold funds to cover a variety of expenses and potential retrospective charges.  As noted above, the Company similarly withholds funds from its customers to cover expenses and retrospective charges.  The third-party payables balance is computed as the excess of (i) funds owed to the Company's customers, inclusive of reserves for retrospective charges, over the sum of (ii) amounts owed from the Company's customers and (iii) reserves withheld for retrospective charges by LECs, payment processors and other parties. 

Comparison of Results for the Year Ended December 31, 2018 to the Year Ended December 31, 2017

Total Revenues.  Total revenues of $16.1 million in 2018 were $5.0 million, or 24%, lower than the $21.1 million of revenues recorded during 2017.  The $5.0 million decrease primarily reflects lower transaction volumes across all clearing, settlement and customer service activities provided for wireline service providers primarily caused by Verizon's exit from third-party billing, partially offset by higher managed service fees arising from TPV's verification services.      

Cost of Services and Gross Profit.  Cost of services in 2018 was $6.4 million, compared to $9.1 million in 2017.  The $2.7 million, or 30%, decrease in cost of services largely reflects lower fees for billing and collection services attributable to the lower level of transaction volumes.  The Company generated $9.7 million of gross profit in 2018, compared to $11.9 million in 2017.  The gross margin of 60.4% in 2018 is 3.8 percentage points higher than the 56.6% margin achieved in 2017.  The improved gross margin in 2018 resulted from a larger percentage of revenue from the verification and wireless businesses, which operate at a higher gross margin level than the wireline business. 

Operating Expenses.  Operating expenses were $9.0 million in 2018, compared to $11.0 million in 2017.  The $2.0 million, or 18%, decrease largely reflects $1.1 million of reductions in compensation and other expenses in BSG Wireless, a $0.4 million reduction in professional fees and a $0.4 million reduction in directors' fees and expenses. 

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA").  The Company generated $0.8 million of EBITDA during 2018, compared to $0.9 million during 2017.  A reconciliation of net income and EBITDA in each period follows:

                                                                                                Year Ended December 31

                          $ millions                                                                2018                       2017

Depreciation and Amortization Expense.  Depreciation and amortization expenses totaled $1.8 million in 2018, compared to $1.9 million in 2017.  The $0.1 million decline reflects cessation of depreciation charges on components of capitalized software development costs for which accumulated depreciation reached the assets' respective gross carrying values.

Impairment Charges.  During 2018 and 2017, the Company recorded $10.0 million and $15.3 million, respectively, of non-cash impairment charges against goodwill.  Goodwill, which resulted from acquisitions made by the Company over ten years ago, was deemed impaired because of reduced transaction volumes and operating income.   The non-cash impairment charges were not included as deductions to earnings for purposes of calculating EBITDA.

Other Income, Net.  The Company realized $1.6 million of other income, net during 2018, compared to $7.5 million in 2017.  Other income, net in 2018 arose largely from $2.1 million of adjustments to reserves related to class action litigation and recoveries from customers, offset by $0.5 million of nonrecurring expenses associated with severance and similar payment obligations arising primarily from headcount reductions and other changes in the BSG Wireless business.  Other income, net in 2017 was largely attributable to adjustments to indemnification reserves and customer accounts in connection with their indemnification obligations to the Company under class action litigation. 

Other income arises from miscellaneous items typically of a nonrecurring nature.  Accordingly, other income items were not included as earnings for purposes of calculating EBITDA.

Change in Cash.   BSG's cash balance at December 31, 2018 was $9.2 million, compared to $11.5 million at December 31, 2017.   The $2.3 million decrease in cash during 2018 is largely attributable to a $1.2 million dividend paid in June 2018, a $1.2 million use of cash in operating activities, $0.4 million of exchange rate differences and $0.3 million of capital expenditures, partially offset by $0.5 million released from restricted cash and $0.5 million of net receipts on purchased receivables.   

Change in Restricted Cash.  In the ordinary course of business, LECs withhold funds from their payments to the Company in order to create a reserve securing potential future obligations of the Company to the LEC.  Through December 31, 2016, pursuant to a 2012 agreement with one LEC, the LEC released a net of $1.7 million of cash reserves.  The cash was transferred into a restricted Company bank account used for funding the Company's indemnification obligations under class action litigation against the LEC.  During 2018 and 2017, net amounts of $0.5 million and $0.8 million, respectively, were transferred from the restricted cash account to satisfy indemnification obligations, reducing restricted cash to $0.3 million at December 31, 2018. 

Change in Third-Party Payables.  Third-party payables at December 31, 2018, inclusive of long-term liabilities, were $4.4 million, compared to $6.7 million at December 31, 2017.   The $2.3 million decrease in third-party payables during 2018 resulted largely from ordinary course settlement activities, which in turn were affected by the reduction of transaction volume in third-party billing.   

Change in Accrued Liabilities.  Accrued liabilities at December 31, 2018 were $0.2 million, compared to $2.8 million at December 31, 2017.  The $2.6 million decrease in accrued liabilities was attributable to $1.6 million of settlement payments to the Federal Trade Commission, a $0.5 million reduction in accrued legal fees and $0.5 million of ordinary course payments and adjustments.         

Capital Expenditures.  During 2018, the Company invested $0.3 million in capital expenditures, primarily for capitalized software development costs and computer equipment.  In 2017, capital expenditures totaled $0.9 million.

Cash Flows for the Year Ended December 31, 2018

Cash flow used in operating activities.  Net cash used in operating activities was $1.2 million during 2018.  Net cash used was principally attributable to a $7.8 million loss, a $2.6 million reduction in accrued liabilities, a $2.3 million reduction in third-party payables and a $1.4 million increase in deferred taxes, offset by $10.0 million of non-cash impairment charges, $1.8 million of depreciation and amortization and a $1.3 million decrease in accounts receivable.

Cash flow provided by investing activities.  Net cash provided by investing activities was $0.2 million, reflecting $0.5 million in net receipts on purchased receivables offset by $0.3 million of capital expenditures.      

Cash flow used in financing activities.  Cash used in financing activities was $1.3 million, principally attributable to $1.2 million of dividends and $0.1 million of payments on long-term debt.      

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A copy of this statement is available on the Company's website (www.bsgclearing.com), and copies are available from BSG's Nominated Advisor at the address below:

Billing Services Group Limited

c/o finnCap Limited

60 New Broad Street

London EC2M 1JJ

United Kingdom

Forward Looking Statements

This report contains certain "forward‑looking" statements and information relating to the plans, objectives, expectations and intentions of the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," "projects," "could," "should," "will" and words or phrases of similar meaning are intended to identify forward‑looking statements. Forward-looking statements reflect the Company's current views with respect to future events and financial performance.  Such statements, including certain information set forth herein under "Financial Review" that is not historical fact or statement of current condition,  reflect management's assessment of the current risks, uncertainties and assumptions related to certain factors including, without limitation, the competitive environment, general economic conditions, customer relations, relationships with local exchange carriers and other vendors, availability of credit, borrowing terms, interest rates, foreign exchange rates, litigation, governmental regulation and supervision, capital expenditures, product development, product acceptance, technological change and disruption, changes in industry practices, one-time events and other factors described herein.    Based upon changing conditions or circumstances arising from  any one or more of these risks or uncertainties, or should any underlying assumptions prove incorrect, actual results may vary materially from historical or anticipated results as  described herein.

Readers are cautioned not to place undue reliance on forward-looking statements.  The Company does not intend to update or revise these forward‑looking statements, whether because of new information, future events or otherwise.

 Full report available here:

http://www.rns-pdf.londonstockexchange.com/rns/3987U_1-2019-3-28.pdf