Spinning it like a bowler

Interesting how spin works in the modern media. Identification and credential verification services provider ChoicePoint Inc. released some financial results for their second quarter and the news is good and bad. No, this is no dichotomy: It all depends on the source.

From an outside news source looking in, the numbers say that Alpharetta, Ga.-based ChoicePoint saw profit fall 4.1 percent in the second quarter, mainly due to approximately US $6 million in charges related to a data breach, restructuring and stock options.

The hard statistics read that ChoicePoint had net income of US $34.9 million on US $240.8 million in revenue in the second quarter, against net income of US $36.4 million on US $227.4 million in revenue in the second quarter of 2005. For the whole six months of 2006, the company reported net income of US $65.5 million on US $476.8 million in revenue, compared with net income of US $73.4 million on US $450.9 million in revenue in the same period of 2005.

As ChoicePoint reported it, though, the second quarter of 2006 and its numbers of US $240.8 million (and US $227.4 million for the second quarter of 2005) represented six percent growth, and earnings per share were reported at US $0.39. Excluding these charges, the ChoicePoint brain trust calculates that EPS “would have been” (Now how often do you see that verb tense used in financial news?) US $0.44, or a seven percent increase for the comparable period of 2005. “I am pleased with the resiliency of our business,” said ChoicePoint chairman / CEO Derek V. Smith. “The hard work and commitment of our team resulted in solid operating results for the quarter.” Well, that’s one side’s way of putting it.

Breaking down that US $6 million hit that made the difference between black and red looks something like this: US $1.8 million for asset impairment, severance and lease abandonment costs primarily associated with the consolidation of certain technology platforms; US $3.1 million in stock option expenses for specific costs related to a data breach by identity thieves in February 2005; and US $1 million in legal expenses and other professional fees related to the data breach.

As a result of the recent underwhelming showings, ChoicePoint reported plans to sell its direct marketing, forensic DNA and shareholder services businesses following a strategic review last month. On the other hand, ChoicePoint announced two acquisitions in the insurance industry, Insuratec Inc. and ePolicy Inc. Based on recent business and economic trends, ChoicePoint expects 2006 full year internal revenue growth from continuing operations to be five to seven percent, with improving trends in the second half of 2006.

Including the impact of acquisitions, total revenue growth is expected to be in the range of six to eight percent for 2006. One should keep a close eye on ChoicePoint financial figures in the near future, however. As part of the announcement of the financial results, ChoicePoint representatives revealed the new method the firm will employ in presenting financial results in order to “reflect how the ChoicePoint businesses will operate under its new strategic focus.”

Company results will have an additional column. As the three businesses slated for divesture will be reported as discontinued operations, the current “Business Services” segment is now two distinct segments: “Screening and Authentication Services” and “Financial and Professional Services”; the first refers to pre-employment, tenant and vendor screening services, associated authentication and credentialing businesses. The latter includes the businesses involved in the sale of public information to the banking, mortgage and professional services markets.