E-bill processor CheckFree
The company grew its core business of processing payment transactions by 55% over the past 12 months, closing out the year with 905 million transactions processed. However, with the growing commoditization of bill-paying services, even an arguable best-in-class player such as CheckFree has to expect some pricing pressures. And indeed, revenue per transaction has fallen 13% over the past year.
As a result, the company's revenue growth rate didn't quite keep up with the increase in transaction volume -- although the 25% increase CheckFree did post was still none too shabby. Moreover, although per-transaction revenues declined, the company did an admirable job of squeezing maximum profits out of the dollars it did take in. One year ago, CheckFree earned $10.5 million on $606.5 million in sales. Fiscal 2005 saw that net rise roughly 350% to $46.8 million.
More remarkable for a highly profitable tech company, CheckFree kept the lid on its options program, allowing the diluted share count to increase just 1% over the past year. That helped CheckFree duplicate its company-wide 350% profits increase on the per-share level, as well.
And now for the caveats
Caveat No. 1: In one respect, the company's free cash flow didn't perform quite as well as did GAAP profits in 2005; free cash flow rose just 16% year over year.
Anti-caveat No. 1: In another respect, free cash flow positively shined. Putting aside the growth race for a moment, as an absolute figure, CheckFree posted GAAP net profits of $46.8 million in fiscal 2005. Compare that to the company's $172 million in free cash flow, and it's clear that this business is generating way more cash than the GAAP numbers show.
Caveat No. 2: Stock dilution was a little worse than the 1% that I mentioned above. Actually, "1%" was the amount that CheckFree's diluted share count increased after the company spent $33.5 million buying back its stock. Pre-buyback, I estimate CheckFree diluted at closer to 2% (which, honestly, is still pretty tame, coming from a profitable tech company).
Want a more intensive, quarter-by-quarter recap of how CheckFree's year went? Read:
- CheckFree's Big Balance
- CheckFree Cashes In
- What's in CheckFree's Future?
- CheckFree's Profitable Payments
Fool contributor Rich Smith does not own shares of CheckFree.