SHELTON, Conn., Oct. 26 /PRNewswire-FirstCall/ -- Clayton Holdings, Inc. (NASDAQ:CLAY), a leading provider of information-based analytics, consulting and outsourced services for capital markets firms, lending institutions, fixed income investors and loan servicers, today announced a loss from continuing operations of $2.6 million on revenues of $31.3 million for the third quarter ended September 30, 2007.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070509/CLAYTONLOGO ) Clayton's third quarter 2007 results include: Key Financial Highlights (amounts in millions, except per share data): Percent Increase Quarter Ended September 30, 2007 2006 (Decrease ----------------------------- ------- ----- --------- Revenue $31.3 $59.2 (47.1)% Gross Profit 13.6 22.7 (39.8)% (Loss) Income from Continuing Operations (2.6) 3.8 n/a Net (Loss) Income (2.8) 3.1 n/a (Loss) Income Per Share - Diluted Continuing Operations $(0.13) $0.18 n/a Discontinued Operations (0.01) (0.04) n/a ------- ------ Total $(0.14) $0.14 n/a ======= ====== Adjusted Net (Loss) Income - Continuing Operations (non-GAAP)* $(1.0) $5.3 n/a Adjusted (Loss) Income Per Share - Continuing Operations (non-GAAP)* $(0.05) $0.25 n/a Diluted Shares Outstanding 21.0 21.3 (1.7)% Gross Profit Margin - Continuing Operations 43.6% 38.3% 13.8% Percent Increase Nine Months Ended September 30, 2007 2006 (Decrease --------------------------------------------------------- Revenue $127.8 $173.0 (26.1)% Gross Profit 51.1 59.6 (14.3)% (Loss) Income from Continuing Operations (0.5) 6.1 n/a Net (Loss) Income (5.5) 4.3 n/a (Loss) Income Per Share - Diluted Continuing Operations $(0.02) $0.33 n/a Discontinued Operations (0.24) (0.10) n/a ------- ------ Total $(0.26) $0.23 n/a ======= ====== Adjusted Net Income - Continuing Operations (non-GAAP)* $4.2 $11.3 (62.6)% Adjusted Earnings Per Share - Continuing Operations (non-GAAP)* $0.20 $0.61 (67.2)% Diluted Shares Outstanding 21.4 18.6 15.4% Gross Profit Margin - Continuing Operations 40.0% 34.5% 15.9% *Adjusted net income from continuing operations excludes the following items, net of tax: acquisition-related amortization, loss on extinguishment of debt and the results of discontinued operations. For a reconciliation of net income from continuing operations to adjusted net income from continuing operations, please refer to the tables on the following pages.
"The unprecedented credit crisis that unfolded in the third quarter caused a dramatic downturn in the nonconforming securitization market and significantly reduced our transaction management volumes. Such volumes may not increase materially until investor confidence and liquidity return to the asset-backed market," commented Frank Filipps, Chairman and Chief Executive Officer of Clayton. "One encouraging sign however, was recent Congressional testimony by the rating agencies that recommended more use of third-party due diligence and incorporating the results in the bond ratings process. We believe that adoption of these recommendations would further increase the value and demand for transaction management and surveillance services."
Other Third Quarter Highlights:
-- Centralized underwriting volume represented 77% of the due diligence
business, continuing the shift towards the centralized due diligence
delivery channel.
-- As of September 30, 2007, Clayton Surveillance was monitoring
approximately $457 billion in assets primarily for investment banks and
for institutional investors in mortgage-backed securities. This
represents an increase of $70 billion, or 18%, since September 30,
2006. Revenues from our Surveillance business increased by almost 16%
to $10.3 million in the quarter, accounting for 33.0% of total
revenues, up from 15.1% a year ago.
-- Gross margin from continuing operations was 43.6% for the three months
ended September 30, 2007, as compared to 38.3% in the third quarter of
2006. This was the result of a shift in the business mix to higher
margin product offerings and implementation of cost containment
efforts. Expenses in the quarter included over $1 million of non-
recurring charges for employee severance costs and lease termination
fees.
-- As previously announced, $5 million of debt was prepaid in July, 2007.
Cash generated from operations was $17.3 million in the third quarter
and Clayton had $27.9 million of cash as of September 30, 2007.
Management will hold a conference call today at 10:00 a.m. EDT. A live webcast of the conference call will be available online at http://www.clayton.com. Web participants are encouraged to go to Clayton's website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. Listening to the webcast requires speakers and RealPlayer(TM) software, downloadable without charge at http://www.real.com. Those without Web access can access the call by phone and should plan to dial in approximately 10 minutes prior to the call. The dial-in numbers are (866) 825-3308 for domestic callers and (617) 213-8062 for international callers. The participant passcode for both is 77958147.
A recording of the conference call will remain available for 90 days, on Clayton's website and via telephonic replay. The replay dial-in number is (888) 286-8010 for domestic callers and (617) 801-6888 for international callers. The participant passcode for both is 56411240.
About Clayton Holdings, Inc.
Clayton Holdings, Inc., headquartered in Shelton, Connecticut, is an information and analytics company serving leading capital markets firms, lending institutions, fixed income investors and loan servicers with a full suite of information-based analytics, specialty consulting and outsourced services. Clayton's services include due diligence analytics, conduit support services, professional staffing, compliance products and services, credit risk management and surveillance and specialized loan servicing services. Additional information is available at www.clayton.com.
Safe Harbor Statement
Certain items in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Clayton can give no assurance that expectations will be attained. Factors that could cause actual results to differ materially from Clayton's expectations include, but are not limited to, adverse changes in the mortgage-backed securities market, the mortgage lending industry or the housing market; the level of competition for Clayton's services; the loss of one or more of Clayton's largest clients; Clayton's ability to maintain its professional reputation; management's ability to execute Clayton's business strategy; Clayton's ability to recruit and retain additional qualified independent loan review specialists; and other risks detailed in Clayton's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2007 and other reports filed with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date of this press release. Clayton expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Clayton's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.
Reconciliation of Non-GAAP Measures
This earnings release contains non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of the adjusted (non-GAAP) financial measures to the most directly comparable GAAP financial measures.
Adjusted net income from continuing operations and adjusted earnings per share from continuing operations are discussed in this earnings release because management uses this information in evaluating the results of the continuing operations of the business and believes that this information provides the users of the financial statements a valuable insight into the operating results. Additionally, management believes that it is in the best interest of its investors to provide financial information that will facilitate comparison of both historical and future results and allows greater transparency to supplemental information used by management in its financial and operational decision making. Management encourages investors to review the reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures that are provided within the financial information attached to this release.
Clayton is providing its current quarter GAAP results as well as financial results that have been adjusted for the impact of acquisition-related amortization, loss from extinguishment of debt and discontinued operations. The Company believes that these non-GAAP measures supplement its consolidated GAAP financial statements as they provide a consistent basis for comparison between reporting periods that are not influenced by certain non-cash or non- recurring items and are, therefore, useful to investors in helping them to better understand the Company's operating results.
CONTACT:
Rick Herbst
Chief Financial Officer
(203) 926-5600
CLAYTON HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2007 2006 2007 2006
-------- -------- -------- --------
Revenue $31,318 $59,172 $127,824 $173,014
Cost of services:
Compensation expense 15,255 28,061 61,181 85,671
Travel and related expenses 1,299 6,301 10,389 20,181
Other direct costs 1,121 2,156 5,133 7,524
-------- -------- -------- --------
Total cost of services 17,675 36,518 76,703 113,376
Gross profit 13,643 22,654 51,121 59,638
Operating expenses:
Salaries and benefits 5,563 5,423 16,759 15,538
Other selling, general and
administrative expenses 6,165 4,655 17,195 13,818
Depreciation and amortization 2,362 2,069 6,850 5,435
Amortization of intangibles 2,573 2,542 7,642 7,626
-------- -------- -------- --------
Total operating expenses 16,663 14,689 48,446 42,417
(Loss) income from operations (3,020) 7,965 2,675 17,221
Interest expense, net 884 1,746 3,098 6,471
Loss from extinguishment of debt 44 - 134 746
Other income 5 - 5 -
-------- -------- -------- --------
(Loss) income from continuing
operations before income taxes (3,943) 6,219 (552) 10,004
Income tax (benefit) expense (1,323) 2,419 (29) 3,878
-------- -------- -------- --------
(Loss) income from continuing
operations (2,620) 3,800 (523) 6,126
Loss from discontinued operations,
net of tax of $0, $0.2, $0.8 and
$1.0, respectively (140) (740) (1,543) (1,792)
Loss on disposal, net of tax of $0
and $1.9, respectively (73) - (3,404) -
-------- -------- -------- --------
Net (loss) income $(2,833) $3,060 $(5,470) $4,334
======== ======== ======== ========
Basic (loss) income per share:
Continuing operations $(0.13) $0.19 $(0.02) $0.34
Discontinued operations (0.01) (0.04) (0.24) (0.10)
-------- -------- -------- --------
Total $(0.14) $0.15 $(0.26) $0.24
======== ======== ======== ========
Diluted (loss) income per share:
Continuing operations $(0.13) $0.18 $(0.02) $0.33
Discontinued operations (0.01) (0.04) (0.24) (0.10)
-------- -------- -------- --------
Total $(0.14) $0.14 $(0.26) $0.23
======== ======== ======== ========
Weighted average number of shares of
common stock outstanding:
Basic 20,957 20,537 20,893 17,777
Diluted 20,957 21,312 20,893 18,578
Reconciliation of non-GAAP measures:
Net (loss) income from continuing
operations as reported $(2,620) $3,800 $(523) $6,126
Add amortization of
intangibles(1) 2,498 2,542 7,494 7,626
Add loss on extinguishment
of debt(2) 44 - 134 746
Less income tax impact of these
adjustments(3) (958) (998) (2,899) (3,245)
-------- -------- -------- --------
Adjusted net (loss) income -
continuing operations $(1,036) $5,344 $4,205 $11,253
======== ======== ======== ========
Adjusted (loss) income per share -
continuing operations:
Basic $(0.05) $0.26 $0.20 $0.63
Diluted $(0.05) $0.25 $0.20 $0.61
Weighted average number of shares of
common stock outstanding:
Basic 20,957 20,537 20,893 17,777
Diluted 20,957 21,312 21,437 18,578
(1) amount represents amortization expense associated with intangible
assets as a result of assets acquired in certain business
acquisitions, including amounts primarily related to acquired
customer relationships, technology, noncompetition agreements and
client backlog.
(2) amount represents write-off of deferred financing costs associated
with the portion of the term loan that was repaid earlier than
scheduled.
(3) amount represents the income tax impact of the amortization expense
adjustments referred to in (1) above and the loss on extinguishment
of debt referred to in (2) above.
CLAYTON HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2007 2006
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash $27,902 $22,882
Restricted cash - 11,739
Accounts receivable, net 23,616 37,452
Unbilled receivables 7,225 14,950
Prepaid and other current assets 2,319 3,252
Prepaid income taxes 5,276 1,791
Deferred tax assets 605 572
Assets of discontinued operations - 5,015
------------- ------------
Total current assets 66,943 97,653
Property and equipment, net 16,991 19,621
Goodwill 70,011 69,843
Intangible assets, net 69,288 74,294
Other assets, net 1,329 1,502
------------- ------------
Total assets $224,562 $262,913
============= ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Long term debt and capital lease
obligations, current portion $668 $929
Accounts payable and accrued
expenses 15,323 22,832
Servicer escrow liability - 11,739
Liabilities of discontinued
operations - 19
------------- ------------
Total current liabilities 15,991 35,519
Long term debt and capital lease
obligations, net of current portion 48,903 64,423
Deferred tax liabilities 1,333 4,089
Deferred revenue 266 204
Deferred rent 1,567 949
Other long-term liabilities 2,664 -
------------- ------------
Total liabilities 70,724 105,184
Commitments and contingencies
Stockholders' equity:
Common stock 211 207
Additional paid-in capital 144,516 141,256
Retained earnings 8,997 16,266
Accumulated other comprehensive
loss 114 -
------------- ------------
Total stockholders' equity 153,838 157,729
------------- ------------
Total liabilities and
stockholders' equity $224,562 $262,913
============= ============
Supplementary Data
Domestic Loan Volumes (unaudited)
Three Months Ended September 30,
--------------------------------
Increase/
(Decrease)
----------
2007 2006 Amount %
-------- -------- -------- --------
Due Diligence:
Traditional file reviews:
Field 15,000 137,000 (122,000) (89.1)%
CU 63,000 69,000 (6,000) (8.7)%
Other file reviews 4,000 32,000 (28,000) (87.5)%
-------- -------- --------
82,000 238,000 (156,000) (65.5)%
Conduit 3,000 25,000 (22,000) (88.0)%
-------- -------- --------
Total 85,000 263,000 (178,000) (67.7)%
======== ======== ========
Nine Months Ended September 30,
--------------------------------
Increase /
(Decrease)
----------
2007 2006 Amount %
-------- -------- -------- --------
Due Diligence:
Traditional file reviews:
Field 166,000 412,000 (246,000) (59.7)%
CU 193,000 178,000 15,000 8.4%
Other file reviews 22,000 53,000 (31,000) (58.5)%
-------- -------- --------
381,000 643,000 (262,000) (40.7)%
Conduit 27,000 58,000 (31,000) (53.4)%
-------- -------- --------
Total 408,000 701,000 (293,000) (41.8)%
======== ======== ========
Revenue by Product (unaudited)
Three Months Ended September 30,
---------------------------------
2007 2006 Increase/(Decrease)
---------------- ---------------- -------------------
% of % of
(in thousands) Amount Revenues Amount Revenues Amount %
------- -------- ------- -------- ------- -------
Transaction
Management:
Field Due
Diligence $3,666 11.7% $20,986 35.5% $(17,320) (82.5)%
Central
Underwriting 6,760 21.6% 10,273 17.3% (3,513) (34.2)%
Ancillary
Services 432 1.3% 1,619 2.7% (1,187) (73.3)%
------- ------- ------- ------- --------
Sub-total Due
Diligence 10,858 34.6% 32,878 55.5% (22,020) (67.0)%
Conduit Support
Services 1,388 4.4% 7,097 12.0% (5,709) (80.4)%
Professional
Staffing
Services 1,802 5.8% 4,075 6.9% (2,273) (55.8)%
Clayton
Euro Risk 2,279 7.3% - 0.0% 2,279 n/a
Other 1,648 5.3% 3,132 5.3% (1,484) (47.4)%
------- ------- ------- ------- --------
Sub-total
Transaction
Management 17,975 57.4% 47,182 79.7% (29,207) (61.9)%
Surveillance
Services 10,332 33.0% 8,937 15.1% 1,395 15.6%
Special
Servicing 3,011 9.6% 3,053 5.2% (42) (1.4)%
------- ------- ------- ------- --------
Total
Clayton $31,318 100.0% $59,172 100.0% $(27,854) (47.1)%
======= ======= ======= ======= =========
Nine Months Ended September 30,
---------------------------------
2007 2006 Increase/(Decrease)
---------------- ---------------- -------------------
% of % of
(in thousands) Amount Revenues Amount Revenues Amount %
------- -------- ------- --------- -------- -------
Transaction
Management:
Field Due
Diligence $32,863 25.7% $68,563 39.6% $(35,700) (52.1)%
Central
Underwriting 23,948 18.7% 25,731 14.9% (1,783) (6.9)%
Ancillary
Services 2,779 2.2% 5,628 3.3% (2,849) (50.6)%
------- ------- ------- ------- --------
Sub-total Due
Diligence 59,590 46.6% 99,922 57.8% (40,332) (40.4)%
Conduit Support
Services 9,252 7.3% 20,321 11.7% (11,069) (54.5)%
Professional
Staffing
Services 8,028 6.3% 12,001 6.9% (3,973) (33.1)%
Clayton
Euro Risk 3,433 2.7% - 0.0% 3,433 n/a
Other 5,635 4.4% 6,717 3.9% (1,082) (16.1)%
------- ------- ------- ------- --------
Sub-total
Transaction
Management 85,938 67.3% 138,961 80.3% (53,023) (38.2)%
Surveillance
Services 34,695 27.1% 24,681 14.3% 10,014 40.6%
Special
Servicing 7,191 5.6% 9,372 5.4% (2,181) (23.3)%
------- ------- ------- ------- --------
Total
Clayton $127,824 100.0% $173,014 100.0% $(45,190) (26.1)%
======== ======= ======== ======= =========
Source: Clayton Holdings, Inc.