Revenues of $129.7 Million; GAAP Net Income of $0.15 Per Diluted Share;
Earnings Reduced by $0.08 Per Diluted Share as a Result of Early Debt
Retirement
ENGLEWOOD, Colo., July 27 /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, 2004.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020627/CSGSLOGO)
Second Quarter 2004 Highlights:
* GAAP results were as follows: total revenues were $129.7 million;
operating income was $22.0 million; and net income per diluted share
was $0.15. Net income was reduced by $0.08 per diluted share as a
result of the write-off of deferred financing costs related to CSG's
previous bank debt, which was repaid during the quarter.
* Cash flows from operations for the quarter ended June 30, 2004 were
$40.2 million.
* CSG completed its offering of $230.0 million of 2.5% senior
subordinated convertible contingent debt securities, and used a
portion of the proceeds to retire its existing bank debt, and to
repurchase 2.1 million shares of its common stock for $40.0 million
($18.72 per share).
* CSG's Broadband Services Division (BSD) expanded its penetration of
ancillary products and services within Adelphia, Mediacom, DirecTV and
Time Warner. In addition, CSG signed a new five-year processing
agreement with Adelphia Communications, which includes services
related to Adelphia's delivery of Voice over IP services. The
bankruptcy court approved this agreement during the quarter.
* CSG's Global Software Services Division (GSS) expanded its
relationships with a number of customers including AT&T, BSNL, Casema,
O2, GCI, British Telecom and Bellsouth Ecuador. In addition, CSG
continued to expand its presence in China with the addition of two new
customers -- Sichuan Telecom and Shanghai Telecom.
* The Kenan FX business framework continued to gain momentum with six
providers choosing to upgrade or implement the solution during the
second quarter, bringing the total number of Kenan FX customers to 16.
In addition, US LEC, a North American telecommunications carrier
providing integrated voice, data and Internet services to businesses
and enterprises in the Eastern United States, successfully deployed
Kenan FX this quarter.
"We are continuing to see a stabilization in the telecommunications
sector," said Neal Hansen, chairman and chief executive officer of CSG Systems
International, Inc. "Providers are looking for ways to increase their
revenues and decrease their costs. In addition, our customers are
successfully rolling out new services. As a result, there is an increased
need for solutions that enable operators to bundle multiple products and
services. We believe that we are well-positioned to benefit from this growing
need."
Summary Results of Operations Information (unaudited)
(in thousands, except per share amounts and percentages):
Three Months Ended Six Months Ended
June 30, June 30,
Percent Percent
2004 2003 (2) Change 2004 2003 (2) Change
Total revenues $129,663 $142,361 (9%) $260,027 $284,293 (9%)
Operating income 21,980 20,303 8% 43,264 38,159 13%
Net income 7,756 11,719 (34%) 18,589 20,426 (9%)
Net income per
diluted share 0.15 0.23 (35%) 0.36 0.40 (10%)
Certain non-cash
expenses (1):
Depreciation 3,517 4,334 (19%) 7,153 8,933 (20%)
Amortization 7,251 5,775 26% 13,572 12,366 10%
Stock-based
employee
compensation 3,800 1,414 169% 7,945 2,709 193%
Total $14,568 $11,523 26% $28,670 $24,008 19%
(1) These items are calculated in accordance with GAAP, and are reflected
in the accompanying Condensed Consolidated Statements of Income and
Cash Flows.
(2) During the fourth quarter of 2003, CSG adopted the fair value method
of accounting for stock-based awards in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation", using the
prospective method of transition. The adoption of SFAS No. 123 was
effective as of January 1, 2003. As a result, CSG has restated its
consolidated financial statements for the three and six months ended
June 30, 2003 to reflect the inclusion of additional stock-based
employee compensation expense of approximately $0.2 million and
$0.3 million, respectively.
Second Quarter 2004 Results
Processing revenues for the second quarter of 2004 were $80.9 million,
compared to $91.0 million for the same period last year and $81.1 million for
the first quarter of 2004. The year-over-year quarterly reduction relates
primarily to the lower revenues from Comcast as a result of the October 2003
arbitration ruling.
Software revenues decreased 33 percent year-over-year to $8.1 million,
however increased six percent from the first quarter of 2004. Compared to the
second quarter of last year, maintenance revenues increased four percent to
$23.7 million, however, decreased six percent when compared to the first
quarter of 2004. Professional services generated $17.0 million of revenue in
the quarter, a four percent increase when com-pared to the same period last
year and a three percent increase when compared to the first quarter of 2004.
Net income presented under generally accepted accounting principles
("GAAP") for the second quarter of 2004 was $7.8 million, or $0.15 per diluted
share. The second quarter results for 2004 were reduced by the write-off of
deferred financing costs of $6.6 million (related to the retirement of CSG's
previously outstanding bank debt), and restructuring charges of approximately
$0.1 million, or $0.08 per diluted share in total. GAAP net income for the
second quarter of 2003 was $11.7 million, or $0.23 per diluted share. The
second quarter 2003 results were reduced by approximately $1.0 million, or
$0.01 per diluted share, due to restructuring charges.
Divisional Results
CSG is organized into two divisions: the Broadband Services Division and
the Global Software Services Division. CSG excludes its restructuring charges
in the determination of its GAAP segment results. The results of operations
for the divisions were as follows (in thousands, except percentages):
Three Months Ended June 30, 2004
Broadband
Services GSS
Division Division Corporate Total
Processing revenues $80,278 $617 $-- $80,895
Software revenues 935 7,174 -- 8,109
Maintenance revenues 4,546 19,107 -- 23,653
Professional services
revenues 254 16,752 -- 17,006
Total revenues 86,013 43,650 -- 129,663
Segment operating
expenses (3) 48,699 42,682 16,157 107,538
Contribution margin
(loss) (3) $37,314 $968 $(16,157) $22,125
Contribution margin
percentage 43.4% 2.2% N/A 17.1%
Three Months Ended June 30, 2003 (4)
Broadband
Services GSS
Division Division Corporate Total
Processing revenues $90,433 $608 $-- $91,041
Software revenues 466 11,682 -- 12,148
Maintenance revenues 5,079 17,749 -- 22,828
Professional services
revenues 212 16,132 -- 16,344
Total revenues 96,190 46,171 -- 142,361
Segment operating
expenses (3) 53,448 48,213 19,404 121,065
Contribution margin
(loss) (3) $42,742 $(2,042) $(19,404) $21,296
Contribution margin
(loss) percentage 44.5% (4.4)% N/A 15.0%
Six Months Ended June 30, 2004
Broadband
Services GSS
Division Division Corporate Total
Processing revenues $160,722 $1,305 $-- $162,027
Software revenues 1,823 13,923 -- 15,746
Maintenance revenues 9,673 39,031 -- 48,704
Professional services
revenues 398 33,152 -- 33,550
Total revenues 172,616 87,411 -- $260,027
Segment operating
expenses (3) 97,954 85,251 31,262 214,467
Contribution margin
(loss) (3) $74,662 $2,160 $(31,262) $45,560
Contribution margin
percentage 43.3% 2.5% N/A 17.5%
Six Months Ended June 30, 2003 (4)
Broadband
Services GSS
Division Division Corporate Total
Processing revenues $180,882 $1,335 $-- $182,217
Software revenues 2,135 20,177 -- 22,312
Maintenance revenues 10,108 35,123 -- 45,231
Professional services
revenues 582 33,951 -- 34,533
Total revenues 193,707 90,586 -- $284,293
Segment operating
expenses (3) 105,083 99,535 37,364 241,982
Contribution margin
(loss) (3) $88,624 $(8,949) $(37,364) $42,311
Contribution margin
(loss) percentage 45.8% (9.9)% N/A 14.9%
(3) CSG's segment operating expenses and contribution margin (loss),
determined in accordance with GAAP, exclude restructuring charges of
$0.1 million and $1.0 million, respectively, for the three months
ended June 30, 2004 and 2003, and $2.3 million and $4.2 million,
respectively, for the six months ended June 30, 2004 and 2003.
(4) The respective segment results have been restated for the three and
six months ended June 30, 2003 to reflect the inclusion of additional
stock-based compensation expense of approximately $0.2 million and
$0.3 million, respectively, as a result of CSG's adoption of SFAS
No. 123, as discussed above.
Broadband Services Division
Total domestic customer accounts processed on CSG's system as of June 30,
2004 were 43.7 million compared to 43.5 million as of March 31, 2004. The
annualized revenue per processing unit for the second quarter of 2004 was
$7.42 compared to annualized revenue per processing unit of $7.38 for the
first quarter of 2004.
This quarter, CSG expanded its relationship with several clients including
DirecTV, Mediacom and Time Warner. In addition, CSG signed a new five-year
processing agreement with Adelphia that includes services related to
Adelphia's delivery of Voice over IP services, and helped Time Warner continue
to rollout Voice over IP services in several markets, including Houston,
Columbus and Cincinnati.
Global Software Services Division
The GSS Division expanded its relationship with existing customers as well
as added new customers in the Asia Pacific region. Sichuan Telecom and
Shanghai Telecom will be using the Kenan FX framework to support their
subscribers in the Chinese market. This brings the total number of clients
using Kenan FX framework to 16, including six additions during the second
quarter.
Financial Condition
As of June 30, 2004, CSG had cash and short-term investments of
$131.2 million, compared to $105.7 million as of March 31, 2004 and
$105.4 million as of December 31, 2003. Billed net accounts receivable were
$123.7 million as of June 30, 2004, compared to $137.6 million as of March 31,
2004 and $130.7 million as of December 31, 2003.
Cash flows from operations for the quarter ended June 30, 2004 were
$40.2 million, compared to $37.1 million for the same period in 2003, an
increase of $3.1 million. Cash flows from operations for the quarter ended
March 31, 2004 were $32.0 million, an increase of $8.2 million sequentially
between quarters. The second quarter cash flows from operations of
$40.2 million are significantly higher than our normal quarterly expectations,
resulting primarily from the sale of certain pre-bankruptcy Adelphia accounts
receivable to a third party, and higher than normal cash collections of
accounts receivable within the GSS Division.
Convertible Debt Offering
In June 2004, CSG completed an offering of $230.0 million of 2.5% senior
subordinated convertible contingent debt securities due June 15, 2024 in a
private placement to qualified institutional buyers pursuant to exemptions
from the registration requirements of the Securities Act of 1933. CSG used
the proceeds from the debt securities, along with available cash, to: (i)
repay the outstanding balance of its existing bank debt; (ii) repurchase
2.1 million shares of its common stock for $40.0 million; and (iii) pay debt
issuance costs.
Stock Repurchase Program
Effective June 2, 2004, CSG's Board of Directors increased the number of
shares CSG is authorized to repurchase under its stock repurchase program by
5.0 million, to a total of 15.0 million shares. During the second quarter of
2004 (in conjunction with the convertible contingent debt offering) CSG
repurchased 2.1 million shares of its common stock for $40.0 million
($18.72 per share). As of June 30, 2004, the total shares repurchased under
CSG's stock repurchase program since its inception in August 1999 totaled
8.5 million shares, at a total repurchase price of approximately $240 million
(weighted-average price of $28.28 per share). At June 30, 2004, the total
remaining number of shares authorized for repurchase under the program totaled
6.5 million shares.
Third Quarter and Full Year 2004 Financial Guidance
"For the third quarter, we are expecting revenues of between $126 million
and $133 million and earnings per diluted share of between 19 and 24 cents,"
Peter Kalan, chief financial officer, said.
"For fiscal year 2004, we remain comfortable with our revenue guidance of
$515 million to $530 million," Kalan added. "However, the anticipated
accretion associated with the convertible debt offering is being negated due
to increasing costs associated with the support of our clients rollout of new
services and our continued expansion into new geographies. Therefore, our new
full-year GAAP earnings per diluted share are expected to be between 77 cents
and 87 cents. This reflects a one-time reduction of $0.08 in diluted earnings
per share as a result of the second quarter write-off of deferred financing
costs.
"In addition, there are a number of non-cash items included in our
earnings per share guidance," Kalan said. "These non-cash items include
amortization of approximately $27 million or 33 cents per diluted share,
depreciation expense of approximately $14 million or 17 cents per diluted
share, and stock-based employee compensation expense of approximately
$15 million or 18 cents per diluted share. Our guidance does not include any
restructuring charges that may be incurred beyond the second quarter of 2004
as we are not able to estimate them today."
Conference Call
CSG will host a one-hour conference call on Tuesday, July 27, 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 our 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 and Echostar Communications, which combined
represent approximately 30 percent of the CSG's revenue; 2) the continued
acceptance of CSG CCS/BP, 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 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; 9) CSG's ability to successfully deliver on lengthy and/or
complex implementation projects, which by their nature, carry much more risk;
and 10) any change in the accounting treatment as it relates to the
determination of diluted shares outstanding for contingent convertible debt
instruments, which could adversely impact our diluted earnings per share
amounts. 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,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $129,004 $105,397
Short-term investments 2,197 --
Total cash, cash equivalents
and short-term investments 131,201 105,397
Trade accounts receivable --
Billed, net of allowance of
$6,942 and $11,145 123,720 130,691
Unbilled and other 13,756 18,042
Deferred income taxes 5,971 9,134
Income taxes receivable 4,353 35,076
Other current assets 12,000 11,697
Total current assets 291,001 310,037
Property and equipment, net of
depreciation of $94,134 and $89,529 33,827 38,218
Software, net of amortization
of $70,069 and $62,957 31,414 37,780
Goodwill 217,778 219,199
Client contracts, net of
amortization of $56,143 and $50,973 52,772 57,458
Deferred income taxes 49,485 53,327
Other assets 8,893 8,756
Total assets $685,170 $724,775
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $-- $45,137
Client deposits 19,317 17,175
Trade accounts payable 21,187 21,291
Accrued employee compensation 28,129 32,415
Deferred revenue 57,870 52,655
Income taxes payable 15,894 20,723
Arbitration charge payable -- 25,181
Other current liabilities 20,725 25,818
Total current liabilities 163,122 240,395
Non-current liabilities:
Long-term debt, net of
current maturities 230,000 183,788
Deferred revenue 4,381 3,270
Other non-current liabilities 5,306 6,537
Total non-current liabilities 239,687 193,595
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; 52,029,424 shares and
53,788,062 shares outstanding 597 593
Additional paid-in capital 292,721 281,784
Deferred employee compensation (2,646) (4,458)
Accumulated other comprehensive income:
Unrealized gain on short-term
investments, net of tax (2) 1
Cumulative translation adjustments 6,755 6,519
Treasury stock, at cost, 7,636,496
shares and 5,499,796 shares (211,110) (171,111)
Accumulated earnings 196,046 177,457
Total stockholders' equity 282,361 290,785
Total liabilities and
stockholders' equity $685,170 $724,775
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,
2004 2003 2004 2003
Revenues:
Processing and related
services $80,895 $91,041 $162,027 $182,217
Software 8,109 12,148 15,746 22,312
Maintenance 23,653 22,828 48,704 45,231
Professional services 17,006 16,344 33,550 34,533
Total revenues 129,663 142,361 260,027 284,293
Cost of revenues:
Cost of processing and
related services 34,619 35,557 68,425 69,676
Cost of software and
maintenance 17,162 17,395 33,436 35,705
Cost of professional
services 15,616 14,673 29,766 33,228
Total cost of revenues 67,397 67,625 131,627 138,609
Gross margin (exclusive
of depreciation) 62,266 74,736 128,400 145,684
Operating expenses:
Research and development 14,382 16,922 30,222 32,420
Selling, general and
administrative 22,242 32,184 45,465 62,020
Depreciation 3,517 4,334 7,153 8,933
Restructuring charges 145 993 2,296 4,152
Total operating expenses 40,286 54,433 85,136 107,525
Operating income 21,980 20,303 43,264 38,159
Other income (expense):
Interest expense (2,684) (3,482) (6,238) (7,356)
Write-off of deferred
financing costs (6,569) -- (6,569) --
Interest and investment
income, net 273 443 556 731
Other, net (537) 2,443 (1,050) 2,829
Total other (9,517) (596) (13,301) (3,796)
Income before income taxes 12,463 19,707 29,963 34,363
Income tax provision (4,707) (7,988) (11,374) (13,937)
Net income $7,756 $11,719 $18,589 $20,426
Basic net income per
common share:
Net income available
to common stockholders $0.15 $0.23 $0.36 $0.40
Weighted average
common shares 51,285 51,355 51,483 51,330
Diluted net income per
common share:
Net income available
to common stockholders $0.15 $0.23 $0.36 $0.40
Weighted average
common shares 52,096 51,656 52,175 51,570
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Six Months Ended
June 30, June 30,
2004 2003
Cash flows from operating activities:
Net income $18,589 $20,426
Adjustments to reconcile net income to
net cash provided by operating activities --
Depreciation 7,153 8,933
Amortization 13,572 12,366
Restructuring charge for abandonment
of facilities 595 683
Loss on short-term investments 3 --
Write-off of deferred financing costs 6,569 --
Deferred income taxes 7,046 1,958
Tax benefit of stock options exercised 423 9
Stock-based employee compensation 7,945 2,709
Changes in operating assets and liabilities:
Trade accounts and other receivables, net 11,654 (3,496)
Other current and non-current assets (401) (546)
Arbitration charge payable (25,181) --
Income taxes payable/receivable 27,454 481
Accounts payable and accrued liabilities (9,064) (4,690)
Deferred revenues 5,794 20,530
Net cash provided by operating activities 72,151 59,363
Cash flows from investing activities:
Purchases of property and equipment (2,785) (2,920)
Purchases of short-term investments (6,813) (11)
Proceeds from sale of short-term investments 4,610 --
Acquisition of businesses and assets,
net of cash acquired (852) (2,335)
Acquisition of and investments in
client contracts (1,185) (1,030)
Net cash used in investing activities (7,025) (6,296)
Cash flows from financing activities:
Proceeds from issuance of common stock 4,833 855
Repurchase of common stock (40,448) --
Proceeds from long-term debt 230,000 --
Payments on long-term debt (228,925) (21,075)
Payments of deferred financing costs (7,158) (87)
Net cash used in financing activities (41,698) (20,307)
Effect of exchange rate fluctuations on cash 179 227
Net increase in cash and cash equivalents 23,607 32,987
Cash and cash equivalents, beginning of period 105,397 94,424
Cash and cash equivalents, end of period $129,004 $127,411
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period for --
Interest $5,009 $5,774
Income taxes (25,172) 9,625
SOURCE CSG Systems International, Inc.
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CONTACT:
Liz Bauer, Senior Vice President of CSG
Systems International, Inc., +1-303-804-4065,
liz_bauer@csgsystems.com
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