Strong Execution Provides Solid Revenue and Earnings Growth; Operating Cash
Flow Exceeds Expectations
ENGLEWOOD, Colo., July 26 /PRNewswire-FirstCall/ -- CSG Systems
International, Inc. (Nasdaq: CSGS), a leading provider of customer care and
billing solutions, today reported results for the quarter ended June 30, 2005.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020627/CSGSLOGO)
Second Quarter 2005 Highlights:
* CSG exceeded its financial expectations for the second quarter of
2005. GAAP results were as follows: total revenues were
$141.7 million; operating income was $13.7 million; and net income was
$8.5 million, or $0.17 per diluted share. Net income was reduced by
approximately $4.3 million, or $0.05 per diluted share, for the
accrual of benefits related to Neal Hansen's retirement, and
approximately $6.1 million, or $0.08 per diluted share, for
restructuring charges.
* Cash flows from operations for the quarter ended June 30, 2005 were
$43.3 million, which were higher than expectations as a result of
CSG's strong operating performance for the quarter and favorable
changes in working capital.
* For the quarter, CSG repurchased 1,081,000 shares of its common stock
for approximately $20 million (weighted-average price of $18.49 per
share) under its stock repurchase program.
* On April 1, Ed Nafus replaced Neal Hansen as chief executive officer
and president of the company. Don Reed and James Unruh were recently
added to CSG's Board of Directors and Bernard Reznicek was named
non-executive chairman. As of June 30, Neal Hansen retired from the
board.
* CSG's customers continued to migrate to its enhanced solutions, CSG
Advanced Convergent Platform (ACP) and CSG Kenan FX. To date,
approximately 16 million video customers have migrated to ACP and
37 telecommunications providers have chosen Kenan FX to help them meet
their business objectives.
"We are very pleased with both our financial and operational results for
the quarter," Ed Nafus, chief executive officer and president of CSG Systems
International, Inc., said. "We continue to execute on our short-term
opportunities while solidifying the foundation for long-term, sustainable
growth. We will continue to focus our attention on helping our clients grow
their businesses effectively and efficiently. At the end of the day, we
believe that providing our customers with the best tools, technology and
expertise will result in long-term sustainable growth for both them and us."
Summary GAAP Results of Operations Information (unaudited)
(in thousands, except per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2005 2004 Change 2005 2004 Change
Total revenues $141,719 $129,663 9% $278,625 $260,027 7%
Operating
income 13,688 21,980 (38%) 28,925 43,264 (33%)
Net income 8,547 7,756 10% 17,128 18,589 (8%)
Net income per
diluted share 0.17 0.15 13% 0.35 0.36 (3%)
Second Quarter 2005 Results
Processing revenues for the second quarter of 2005 were $88.7 million, up
ten percent when compared to $80.9 million for the same period last year, and
up six percent when compared to $83.4 million for the first quarter of 2005.
Processing revenues for the second quarter of 2005 include approximately
$2.3 million of one-time, nonrecurring revenues related to contract
termination and client bankruptcy settlements. Software revenues were
$9.8 million for the current quarter, a 20 percent year-over-year increase,
however a decrease of 12 percent when compared to $11.1 million for the first
quarter of 2005. Maintenance revenues for the second quarter of 2005 were
$25.1 million, up six percent when compared to $23.7 million for the same
period last year, and up two percent when compared to $24.5 million for the
first quarter of 2005. Professional services revenues generated $18.1 million
of revenue in the quarter, a seven percent increase when compared to the same
period last year, and a one percent increase when compared to the first
quarter of 2005.
Net income presented under generally accepted accounting principles
("GAAP") for the second quarter of 2005 was $8.5 million, or $0.17 per diluted
share. Net income was reduced by approximately $4.3 million, or $0.05 per
diluted share, for the accrual of benefits related to Neal Hansen's
retirement, and approximately $6.1 million, or $0.08 per diluted share, for
restructuring charges. GAAP net income for the second quarter of 2004 was
$7.8 million, or $0.15 per diluted share. The second quarter 2004 results
were reduced by the write-off of deferred financing costs of $6.6 million and
restructuring charges of approximately $0.1 million, or $0.08 per diluted
share in total.
Supplemental Data (unaudited)
The following information is provided to assist readers in further
evaluating CSG's performance (in thousands, except per share amounts):
Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
Per Diluted Per Diluted
Share Share
Amount (2) Impact (3) Amount (2) Impact (3)
Certain key expense
items:
Neal Hansen
retirement benefits $4,268 $0.05 $-- $--
Write-off of deferred
financing costs -- -- 6,569 0.08
Restructuring charges 6,129 0.08 145 0.00
Total $10,397 $0.13 $6,714 $0.08
Certain non-cash
expenses (1):
Depreciation $3,751 $0.05 $3,517 $0.04
Amortization 7,229 0.09 7,251 0.09
Stock-based employee
compensation 4,313 0.05 3,800 0.04
Total $15,293 $0.19 $14,568 $0.17
Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
Per Diluted Per Diluted
Share Share
Amount (2) Impact (3) Amount (2) Impact (3)
Certain key expense
items:
Neal Hansen
retirement benefits $8,489 $0.11 $-- $--
Write-off of deferred
financing costs -- -- 6,569 0.08
Restructuring charges 6,844 0.08 2,296 0.03
Total $15,333 $0.19 $8,865 $0.11
Certain non-cash
expenses (1):
Depreciation $7,518 $0.09 $7,153 $0.09
Amortization 14,372 0.18 13,572 0.16
Stock-based employee
compensation 8,650 0.11 7,945 0.09
Total $30,540 $0.38 $28,670 $0.34
(1) These items are calculated in accordance with GAAP, and are
reflected in the accompanying Condensed Consolidated Statements of
Income and Cash Flows.
(2) These items (on a pretax basis) are included in CSG's determination
of GAAP financial results.
(3) This represents the after tax impact to net income on a per diluted
share basis using CSG's effective income tax rate of 39% and 38% for
the three and six months ended June 30, 2005 and 2004, respectively.
Divisional Results
CSG is organized into two operating segments: the Broadband Division and
the GSS Division. CSG excludes restructuring charges in the determination of
its GAAP segment results.
During the first quarter of 2005, CSG reorganized certain components of
its operating segments. The reorganization consisted primarily of moving
CSG's plaNet Consulting division (which includes the ICMS assets acquired from
IBM in 2002) from the GSS Division to the Broadband Division. The results of
operations reflecting this reorganization for the two divisions are shown
below (in thousands, except percentages). Segment financial information for
2004 has been restated, as required by GAAP, in order to conform to the new
reporting structure:
Three Months Ended June 30, 2005
Broadband GSS
Division Division Corporate Total
Processing revenues $88,717 $-- $-- $88,717
Software revenues 3,026 6,736 -- 9,762
Maintenance revenues 6,539 18,564 -- 25,103
Professional services
revenues 3,554 14,583 -- 18,137
Total revenues 101,836 39,883 -- 141,719
Segment operating
expenses (4) 64,669 36,597 20,636 121,902
Contribution margin
(loss) (4) $37,167 $3,286 $(20,636) $19,817
Contribution margin
percentage 36.5% 8.2% N/A 14.0%
Three Months Ended June 30, 2004
Broadband GSS
Division Division Corporate Total
Processing revenues $80,895 $-- $-- $80,895
Software revenues 1,202 6,907 -- 8,109
Maintenance revenues 6,516 17,137 -- 23,653
Professional services
revenues 4,082 12,924 -- 17,006
Total revenues 92,695 36,968 -- 129,663
Segment operating
expenses (4) 57,064 34,113 16,361 107,538
Contribution margin
(loss) (4) $35,631 $2,855 $(16,361) $22,125
Contribution margin
percentage 38.4% 7.7% N/A 17.1%
Six Months Ended June 30, 2005
Broadband GSS
Division Division Corporate Total
Processing revenues $172,083 $-- $-- $172,083
Software revenues 7,605 13,259 -- 20,864
Maintenance revenues 12,950 36,699 -- 49,649
Professional services
revenues 7,817 28,212 -- 36,029
Total revenues 200,455 78,170 -- 278,625
Segment operating
expenses (4) 129,697 72,548 40,611 242,856
Contribution margin
(loss) (4) $70,758 $5,622 $(40,611) $35,769
Contribution margin
percentage 35.3% 7.2% N/A 12.8%
Six Months Ended June 30, 2004
Broadband GSS
Division Division Corporate Total
Processing revenues $162,027 $-- $-- $162,027
Software revenues 2,152 13,594 -- 15,746
Maintenance revenues 13,407 35,297 -- 48,704
Professional services
revenues 7,098 26,452 -- 33,550
Total revenues 184,684 75,343 -- 260,027
Segment operating
expenses (4) 114,220 68,563 31,684 214,467
Contribution margin
(loss) (4) $70,464 $6,780 $(31,684) $45,560
Contribution margin
percentage 38.2% 9.0% N/A 17.5%
(4) CSG's segment operating expenses and contribution margin (loss),
determined in accordance with GAAP, exclude restructuring charges
of $6.1 million and $0.1 million, respectively, for the three months
ended June 30, 2005 and 2004, and $6.8 million and $2.3 million,
respectively, for the six months ended June 30, 2005 and 2004.
Broadband Division
Total domestic customer accounts processed on CSG's system as of June 30,
2005 were 44.4 million, compared to 43.9 million as of March 31, 2005. Of
these, approximately 16 million subscribers have migrated to the Advanced
Convergent Platform. The annualized revenue per processing unit ("ARPU") for
the second quarter of 2005 was $8.02 compared to $7.63 for the first quarter
of 2005. The ARPU for the second quarter of 2005 includes $0.21 related to
the $2.3 million of revenues for the one-time, nonrecurring contract
termination and bankruptcy settlements mentioned above.
GSS Division
The GSS Division signed several new clients this quarter, including
Autotrader, the world's #1 online automotive classified advertising company;
Hawaiian Telcom, the leading provider of telecommunications services in
Hawaii; and Instituto Costarriecense de Electrificacion, Costa Rica's largest
telecommunications provider. CSG Kenan FX is now live with nine different
providers, representing every telecommunications vertical and geographic
region. There are now 37 telecommunications companies who have signed up for
the next generation business framework.
Financial Condition
As of June 30, 2005, CSG had cash and short-term investments of
$164.9 million, compared to $146.8 million as of March 31, 2005 and
$157.5 million as of December 31, 2004. Net billed accounts receivable were
$134.0 million as of June 30, 2005 as compared to $143.3 million as of
March 31, 2005 and $142.1 million as of December 31, 2004.
Cash flows from operations for the quarter ended June 30, 2005 were
$43.3 million, compared to $40.2 million for the same period in 2004, an
increase of $3.1 million. Cash flows from operations for the quarter ended
March 31, 2005 were $18.9 million, an increase of $24.4 million sequentially
between quarters. The second quarter 2005 cash flows from operations of
$43.3 million were higher than our expectations as a result of CSG's strong
operating performance for the quarter and favorable changes in working
capital. This included the impact of a key domestic client making payment on
certain invoices which had been delayed during the first quarter of 2005,
which resulted in the payment of four monthly invoices by this client in the
second quarter of 2005.
Stock Repurchase Program
In April 2005, CSG established a Rule 10b5-1 Plan to repurchase shares of
CSG common stock on the open market. Any shares repurchased under the Rule
10b5-1 Plan are counted towards the 15 million share limit authorized under
the terms of CSG's stock repurchase program. The Rule 10b5-1 Plan supplements
any stock repurchases that CSG may decide to purchase under the existing terms
of the stock repurchase program. The maximum quarterly repurchase limitation
established under the Rule 10b5-1 Plan is $15 million.
During the second quarter of 2005, CSG repurchased 1,081,000 shares of its
common stock at a total purchase price of $20.0 million (a weighted-average
price of $18.49 per share). Including these shares, the total shares
repurchased under CSG's stock repurchase program since its inception in August
1999 is 11.7 million shares, at a total repurchase price of $295.6 million (a
weighted-average price of $25.29 per share.) As of June 30, 2005, the
remaining number of shares authorized for repurchase under the program is
3.3 million shares.
Third Quarter 2005 Financial Guidance
"For the third quarter of 2005, we are expecting revenues of between
$135 million and $142 million and GAAP earnings per diluted share of between
22 and 27 cents," Peter Kalan, chief financial officer, said. "Our guidance
does not include any restructuring charges that may be incurred during the
third quarter of 2005 as they are not expected to be significant at this
time."
"We are projecting that our operating expenses for the third quarter will
total between $117 million and $120 million. There are approximately
$15 million of non-cash items included in our third quarter expenses, reducing
results by approximately 19 cents per diluted share," Kalan said. "These
non-cash items include amortization of approximately $7 million, depreciation
expense of approximately $4 million, and stock-based employee compensation
expense of approximately $4 million."
Conference Call
CSG will host a one-hour conference call on Tuesday, July 26, at
5 p.m. EDT, to discuss CSG's second quarter results. The call will be carried
live and archived on the Internet. A link to the conference call is available
at http://www.csgsystems.com.
Additional Information
For additional information about CSG, please visit CSG's web site at
http://www.csgsystems.com. Additional information can be found in the Investor
Relations section of the web site.
About CSG Systems International
Headquartered in Englewood, Colorado, CSG Systems International
(Nasdaq: CSGS) is a leader in next-generation billing and customer care
solutions for the cable television, direct broadcast satellite, advanced IP
services, next generation mobile, and fixed wireline markets. CSG's unique
combination of proven and future-ready solutions, delivered in both outsourced
and licensed formats, empowers its clients to deliver unparalleled customer
service, improve operational efficiencies and rapidly bring new
revenue-generating products to market. CSG is an S&P Midcap 400 company. For
more information, visit CSG's Web site at http://www.csgsystems.com.
This news release contains forward-looking statements as defined under the
Securities Act of 1933, as amended, that are based on assumptions about a
number of important factors and involve risks and uncertainties that could
cause actual results to differ materially from what appears in this news
release. These factors include, but are not limited to: 1) CSG's ability to
continue to perform satisfactorily and maintain good customer relations with
its two largest customers, Comcast Corporation and Echostar Communications,
which combined represent approximately one-third of CSG's revenue; 2) the
continued acceptance of CSG ACP, CSG Kenan FX and their related products and
services; 3) CSG's ability to enhance current products and develop new
technology that will retain existing clients and capture new market share;
4) significant forays into new markets, which may prove costly and
unprofitable; 5) the degree to which CSG's expectations of market penetration
and consumer acceptance of broadband, wireline and wireless services prove
true -- and even if realized, CSG's ability to meet the billing and customer
care needs of those markets; 6) client consolidation, which has decreased the
number of potential buyers for many of CSG's products and services; 7) CSG's
ability to expand and effectively operate its business internationally, which
is much more complex and carries a higher collections and currency risk;
8) CSG's ability to renew software maintenance contracts and sell additional
software products and services to existing and new clients, both domestically
and internationally; and 9) CSG's ability to successfully deliver on lengthy
and/or complex implementation projects, which by their nature, carry much more
risk. This list is not exhaustive and readers are encouraged to review the
additional risks and important factors described in CSG's reports on Forms
10-K and 10-Q and other filings made with the SEC.
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED
(in thousands, except share and per share amounts)
June 30, December 31,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $130,787 $133,551
Short-term investments 34,090 23,927
Total cash, cash equivalents and short-term
investments 164,877 157,478
Trade accounts receivable-
Billed, net of allowance of $3,576 and
$4,818 133,950 142,056
Unbilled and other 14,195 14,030
Deferred income taxes 7,093 5,336
Income taxes receivable 28 4,064
Other current assets 14,190 11,723
Total current assets 334,333 334,687
Property and equipment, net of depreciation
of $93,851 and $87,068 33,124 34,476
Software, net of amortization of $84,105 and
$77,086 17,840 24,695
Goodwill 217,899 218,346
Client contracts, net of amortization of
$69,253 and $62,898 47,878 50,197
Deferred income taxes 33,736 39,478
Other assets 7,891 8,528
Total assets $692,701 $710,407
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Client deposits $19,378 $19,497
Trade accounts payable 18,870 22,412
Accrued employee compensation 39,725 31,859
Deferred revenue 50,177 53,250
Income taxes payable 10,174 15,085
Other current liabilities 20,831 19,909
Total current liabilities 159,155 162,012
Non-current liabilities:
Long-term debt 230,000 230,000
Deferred revenue 8,872 6,844
Other non-current liabilities 6,033 3,481
Total non-current liabilities 244,905 240,325
Total liabilities 404,060 402,337
Stockholders' equity:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; zero shares
issued and outstanding -- --
Common stock, par value $.01 per share;
100,000,000 shares authorized;
49,413,881 shares and 51,016,326 shares
outstanding 603 595
Additional paid-in capital 305,841 298,767
Deferred employee compensation (65) (1,320)
Treasury stock, at cost, 10,848,992 shares
and 8,482,496 shares (266,978) (224,008)
Accumulated other comprehensive income
(loss):
Unrealized loss on short-term investments,
net of tax (9) (5)
Cumulative translation adjustments 7,480 9,400
Accumulated earnings 241,769 224,641
Total stockholders' equity 288,641 308,070
Total liabilities and stockholders' equity $692,701 $710,407
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
Revenues:
Processing and related
services $88,717 $80,895 $172,083 $162,027
Software 9,762 8,109 20,864 15,746
Maintenance 25,103 23,653 49,649 48,704
Professional services 18,137 17,006 36,029 33,550
Total revenues 141,719 129,663 278,625 260,027
Cost of revenues:
Cost of processing and
related services 41,975 34,619 84,433 68,425
Cost of software and
maintenance 15,655 17,162 31,260 33,436
Cost of professional
services 15,811 15,616 31,248 29,766
Total cost of revenues 73,441 67,397 146,941 131,627
Gross margin (exclusive of
depreciation) 68,278 62,266 131,684 128,400
Operating expenses:
Research and development 15,667 14,382 31,116 30,222
Selling, general and
administrative 29,043 22,242 57,281 45,465
Depreciation 3,751 3,517 7,518 7,153
Restructuring charges 6,129 145 6,844 2,296
Total operating expenses 54,590 40,286 102,759 85,136
Operating income 13,688 21,980 28,925 43,264
Other income (expense):
Interest expense (1,850) (2,684) (3,765) (6,238)
Write-off of deferred
financing costs -- (6,569) -- (6,569)
Interest and investment
income, net 1,306 273 2,275 556
Other, net 868 (537) 644 (1,050)
Total other 324 (9,517) (846) (13,301)
Income before income taxes 14,012 12,463 28,079 29,963
Income tax provision (5,465) (4,707) (10,951) (11,374)
Net income $8,547 $7,756 $17,128 $18,589
Basic net income per common
share:
Net income available to
common stockholders $0.18 $0.15 $0.35 $0.36
Weighted-average common
shares 48,151 51,285 48,598 51,483
Diluted net income per
common share:
Net income available to
common stockholders $0.17 $0.15 $0.35 $0.36
Weighted-average common
shares 48,881 52,096 49,233 52,175
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Six Months Ended
June 30, June 30,
2005 2004
Cash flows from operating activities:
Net income $17,128 $18,589
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation 7,518 7,153
Amortization 14,372 13,572
Restructuring charge for abandonment of
facilities 3,492 595
(Gain) loss on short-term investments (170) 3
Write-off of deferred financing costs -- 6,569
Deferred income taxes 3,788 7,046
Tax benefit of stock-based compensation awards 1,073 423
Stock-based employee compensation 8,650 7,945
Changes in operating assets and liabilities:
Trade accounts and other receivables, net 5,787 11,654
Other current and non-current assets (2,692) (401)
Arbitration charge payable -- (25,181)
Income taxes payable/receivable (398) 27,454
Accounts payable and accrued liabilities 2,916 (9,064)
Deferred revenues 684 5,794
Net cash provided by operating activities 62,148 72,151
Cash flows from investing activities:
Purchases of property and equipment (6,458) (2,785)
Purchases of short-term investments (31,535) (15,013)
Proceeds from sale of short-term investments 21,538 11,310
Acquisition of and investments in assets (297) (852)
Acquisition of and investments in client
contracts (3,964) (1,185)
Net cash used in investing activities (20,716) (8,525)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,683 4,833
Repurchase of common stock (43,816) (40,448)
Proceeds from long-term debt -- 230,000
Payments on long-term debt -- (228,925)
Payments of deferred financing costs (87) (7,158)
Net cash used in financing activities (42,220) (41,698)
Effect of exchange rate fluctuations on cash (1,976) 179
Net increase (decrease) in cash and cash
equivalents (2,764) 22,107
Cash and cash equivalents, beginning of period 133,551 100,397
Cash and cash equivalents, end of period $130,787 $122,504
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for -
Interest $3,063 $5,009
Income taxes 9,405 (25,172)
SOURCE CSG Systems International, Inc.
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Related links:
http://www.csgsystems.com
Photo Notes:
NewsCom:
http://www.newscom.com/cgi-bin/prnh/20020627/CSGSLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Liz Bauer, Senior Vice President of CSG
Systems International, Inc., +1-303-804-4065,
liz_bauer@csgsystems.com
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