Revenues of $133.1 Million; GAAP Net Income of $0.32 Per Diluted Share
ENGLEWOOD, Colo., Oct. 25 /PRNewswire-FirstCall/ -- CSG Systems
International, Inc. (Nasdaq: CSGS), a leading provider of customer care and
billing solutions, today reported results for the quarter ended September 30,
2004.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020627/CSGSLOGO)
Third Quarter 2004 Highlights:
* GAAP results were as follows: total revenues were $133.1 million;
operating income was $21.4 million; and net income per diluted share
was $0.32, which includes a positive impact of approximately $0.08 per
diluted share, resulting from foreign currency transaction gains and a
decrease in CSG's estimated 2004 effective income tax rate.
* Cash flows from operations for the quarter ended September 30, 2004
were $24.8 million.
* CSG repurchased 846,000 shares under its stock buyback program during
the quarter.
* CSG's Broadband Services Division (BSD) participated in planning,
testing, trials and rollouts of Voice over IP services with all of its
clients who are offering the service, including Time Warner Cable of
New York City, which launched its telephony service this quarter.
* CSG's Global Software Services Division (GSS) expanded its
relationships with clients in every region, including the
implementation of Kenan FX. In addition, this quarter, CTBC, a
leading convergent services provider in Brazil, selected Kenan FX to
standardize all of its billing for wireline, wireless, broadband and
data.
"We have a very solid client base that is looking for solutions to grow
their businesses while simplifying their operations," said Neal Hansen,
chairman and chief executive officer for CSG Systems International, Inc. "We
are at the forefront in the launch of new services like Voice over IP and data
services. As a result of our continued investment in our solution set, not
only are we well positioned to benefit from our clients' success, but our
clients are well positioned to succeed."
Summary Results of Operations Information (unaudited)
(in thousands, except per share amounts and percentages):
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 (2)(3) 2004 2003 (2)(3)
Total revenues $133,073 $25,510 $393,100 $309,803
Operating income (loss) 21,407 (94,078) 64,671 (55,919)
Net income (loss) 16,333 (53,774) 34,922 (33,348)
Net income (loss) per
diluted share 0.32 (1.05) 0.68 (0.65)
Certain non-cash
expenses (1):
Depreciation 3,535 4,529 10,688 13,462
Amortization 6,756 6,318 20,328 18,684
Stock-based employee
compensation 3,503 1,357 11,448 4,067
Total $13,794 $12,204 $42,464 $36,213
(1) These items are calculated in accordance with GAAP, and are
reflected in the accompanying Condensed Consolidated Statements of
Operations 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 nine months
ended September 30, 2003 to reflect the inclusion of additional
stock-based employee compensation expense of approximately
$0.2 million and $0.5 million, respectively.
(3) The results of operations for the three and nine months ended
September 30, 2003 include a $119.6 million charge to revenue
related to the Comcast arbitration ruling, of which $13.9 million
was attributed to the third quarter 2003 revenues, with the
remaining $105.7 million attributed to revenues for periods prior to
July 1, 2003.
Third Quarter 2004 Results
Processing revenues remained relatively consistent for the third quarter
of 2004 at $80.7 million, compared to $79.4 million for the same period last
year and $80.9 million for the second quarter of 2004. Software revenues
decreased nine percent year-over-year to $9.6 million, however increased
19 percent from the second quarter of 2004. Maintenance revenues were
$24.6 million for the current quarter, an increase of four percent when
compared to both the third quarter of 2003 and the second quarter of 2004.
Professional services generated $18.0 million of revenue in the quarter, a
three percent increase when compared to the same period last year and a six
percent increase when compared to the second quarter of 2004.
Net income presented under generally accepted accounting principles
("GAAP") for the third quarter of 2004 was $16.3 million, or $0.32 per diluted
share, which includes a positive impact of approximately $0.08 per diluted
share, resulting from foreign currency transaction gains of $0.02 per diluted
share, and $0.06 per diluted share due to a decrease in CSG's estimated 2004
effective income tax rate. CSG had a GAAP net loss for the third quarter of
2003 of $(53.8) million, or $(1.05) per diluted share. The third quarter 2003
results were reduced by the $119.6 million charge for the Comcast arbitration
ruling and by $3.5 million of restructuring charges, or $1.33 per diluted
share in total.
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 September 30, 2004
Broadband
Services GSS
Division Division Corporate Total
Processing revenues $80,013 $735 $-- $80,748
Software revenues 1,176 8,468 -- 9,644
Maintenance revenues 4,529 20,107 -- 24,636
Professional services
revenues 210 17,835 -- 18,045
Total revenues 85,928 47,145 -- 133,073
Segment operating
expenses (4) 53,509 43,577 14,489 111,575
Contribution margin
(loss) (4) $32,419 $3,568 $(14,489) $21,498
Contribution margin
percentage 37.7% 7.6% N/A 16.2%
Three Months Ended September 30, 2003 (5)
Broadband
Services GSS
Division (3) Division Corporate Total
Processing revenues
(Broadband Division net
of $13,472 for the
arbitration charge) $78,731 $638 $-- $79,369
Software revenues 1,897 8,703 -- 10,600
Maintenance revenues
(Broadband Division net
of $450 for the
arbitration charge) 4,649 19,027 -- 23,676
Professional services
revenues 310 17,234 -- 17,544
Subtotal 85,587 45,602 -- 131,189
Charge for arbitration
ruling attributable to
periods prior to
July 1, 2003 (105,679) -- -- (105,679)
Total revenues, net (20,092) 45,602 -- 25,510
Segment operating
expenses (4) 54,479 46,530 15,128 116,137
Contribution margin
(loss) (4) $(74,571) $(928) $(15,128) $(90,627)
Contribution margin
(loss) percentage (371.1)% (2.0)% N/A (355.3)%
Nine Months Ended September 30, 2004
Broadband
Services GSS
Division Division Corporate Total
Processing revenues $240,735 $2,040 $-- $ 242,775
Software revenues 2,999 22,391 -- 25,390
Maintenance revenues 14,202 59,138 -- 73,340
Professional services
revenues 608 50,987 -- 51,595
Total revenues 258,544 134,556 -- 393,100
Segment operating
expenses (4) 151,463 128,828 45,751 326,042
Contribution margin
(loss) (4) $107,081 $5,728 $(45,751) $67,058
Contribution margin
percentage 41.4% 4.3% N/A 17.1%
Nine Months Ended September 30, 2003 (5)
Broadband
Services GSS
Division (3) Division Corporate Total
Processing revenues
(Broadband Division net
of $13,472 for the
arbitration charge) $259,613 $1,973 $-- $261,586
Software revenues 4,032 28,880 -- 32,912
Maintenance revenues
(Broadband Division net
of $450 for the
arbitration charge) 14,757 54,150 -- 68,907
Professional services
revenues 892 51,185 -- 52,077
Subtotal 279,294 136,188 -- 415,482
Charge for arbitration
ruling attributable to
periods prior to
July 1, 2003 (105,679) -- -- (105,679)
Total revenues, net 173,615 136,188 -- 309,803
Segment operating
expenses (4) 159,562 146,065 52,492 358,119
Contribution margin
(loss) (4) $14,053 $(9,877) $(52,492) $(48,316)
Contribution margin
(loss) percentage 8.1% (7.3)% N/A (15.6)%
(4) CSG's segment operating expenses and contribution margin (loss),
determined in accordance with GAAP, exclude restructuring charges of
$0.1 million and $3.5 million, respectively, for the three months
ended September 30, 2004 and 2003, and $2.4 million and
$7.6 million, respectively, for the nine months ended September 30,
2004 and 2003.
(5) The respective segment results have been restated for the three and
nine months ended September 30, 2003 to reflect the inclusion of
additional stock-based compensation expense of approximately
$0.2 million and $0.5 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
September 30, 2004 were 44.0 million compared to 43.7 million as of June 30,
2004. The annualized revenue per processing unit for the third quarter of
2004 was $7.36 compared to annualized revenue per processing unit of $7.42 for
the second quarter of 2004.
This quarter, the Broadband Services Division continued its migration of
customers onto its rearchitected customer care and billing solution, Advanced
Convergent Platform. Currently, over 1.5 million customers are being
processed on the solution.
In addition, the company continued its extensive involvement in the
planning, testing, trials and rollout of Voice over IP services with all of
its clients offering the service. Time Warner Cable of New York City, the
largest cable site in the nation, launched its telephony service this quarter.
Global Software Services Division
The GSS Division expanded its relationships with clients representing
every region this quarter. The company continued to see strength in its Asia
Pacific region with expanded contracts with Bharti Airtel, an Indian wireless
and wireline provider, and KDB, a Korean multi-channel satellite provider.
In addition, CTBC, a leading convergent services provider in Brazil
selected Kenan FX as its platform to standardize all of its services,
including wireline, wireless, broadband and data.
Financial Condition
As of September 30, 2004, CSG had cash and short-term investments of
$138.9 million, compared to $131.2 million as of June 30, 2004 and
$105.4 million as of December 31, 2003. Billed net accounts receivable were
$123.3 million as of September 30, 2004, compared to $123.7 million as of
June 30, 2004 and $130.7 million as of December 31, 2003.
Cash flows from operations for the quarter ended September 30, 2004 were
$24.8 million, in line with expectations. This compares to $40.2 million for
the second quarter of 2004 and $39.4 million for the third quarter of 2003.
The second quarter of 2004 and third quarter of 2003 cash flows from
operations were significantly higher than CSG's normal quarterly expectations,
resulting primarily from the sale of certain pre-bankruptcy Adelphia accounts
receivable to a third party during the second quarter of 2004, and higher than
normal cash collections of accounts receivable in each of the quarters,
primarily within the GSS Division.
Stock Repurchase Program
During the third quarter of 2004, CSG repurchased 846,000 shares of its
common stock at a total purchase price of approximately $12.9 million (a
weighted-average price of $15.25 per share.) Including these shares, the
total shares repurchased under CSG's stock repurchase program since its
inception in August 1999 totaled 9.3 million shares, at a total repurchase
price of $252.6 million (a weighted-average price of $27.10 per share.) At
September 30, 2004, the total remaining number of shares authorized for
repurchase under the program totaled 5.7 million shares.
Dilution Calculation for Convertible Debt Securities
It is expected that EITF Issue No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings per Share" will become effective during
the fourth quarter of 2004, with retroactive application required upon
adoption. The EITF's consensus states that shares to be potentially issued
under contingently convertible debt instruments should be included in diluted
earnings per share (if dilutive) regardless of whether any of the contingent
conversion features have been met, which differs from the current treatment of
such debt instruments under GAAP. At this time, CSG expects to make an
irrevocable election to settle the $230 million principal portion of its
Convertible Debt Securities in cash which would then require CSG to calculate
dilution for its Convertible Debt Securities using the "treasury stock" method
in periods in which CSG's average stock price exceeds the current effective
conversion price of $26.77 per share. Under the treasury stock method, CSG
would have no reduction in its previously reported earnings per diluted share
in the second and third quarters of 2004, as CSG's average stock price did not
exceed the effective conversion price of $26.77 per share during these
periods. In addition, going forward, the Convertible Debt Securities would
impact CSG's diluted earnings per share calculation only in those periods in
which CSG's average stock price exceeds the current effective conversion price
of $26.77 per share.
If CSG does not make an irrevocable election to settle the principal
portion of its Convertible Debt Securities in cash prior to the adoption of
EITF 04-8, CSG will be required to calculate dilution for its Convertible Debt
Securities using the "if-converted" method, with retroactive application back
to the June 2004 issuance date of the Convertible Debt Securities. Under the
if-converted method, CSG would restate its previously reported diluted
earnings per share for the third quarter of 2004 from $0.32 to $0.30, or
approximately 6% of additional dilution. The impact to the second quarter of
2004 is not significant, and as a result, no restatement of diluted earnings
per share would be required for this period. In addition, going forward, the
if-converted method would be expected to decrease CSG's diluted earnings per
share by approximately 7-8% over current expectations.
Fourth Quarter and Full Year 2004 Financial Guidance
"For the fourth quarter, we are expecting revenues of between $127 million
and $134 million and earnings per diluted share of between 21 and 27 cents,"
Peter Kalan, chief financial officer, said. "We are narrowing our guidance
range for full-year 2004. With our previous nine months' performance and the
fourth quarter guidance above, we now expect revenues to be between
$520 million and $527 million and GAAP earnings per diluted share of 89 and
94 cents for 2004. This includes a new estimated full year 2004 effective
income tax rate of 32 percent."
"In addition, there are over $56 million of non-cash items included in our
full-year earnings per share guidance, or approximately 75 cents per diluted
share," Kalan said. "These non-cash items include amortization of
approximately $27 million, depreciation expense of approximately $14 million,
and stock-based employee compensation expense of approximately $15 million.
Our guidance does not include any restructuring charges that may be incurred
beyond the third quarter of 2004 as we are not able to estimate them today."
Conference Call
CSG will host a one-hour conference call on Monday, October 25, at 5 p.m.
EDT, to discuss CSG's third 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 and Echostar Communications, which combined
represent approximately one-third of 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) the change in the accounting treatment as it relates to the
determination of diluted shares outstanding for contingent convertible debt
instruments, which could adversely impact CSG's 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)
September 30, December 31,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $130,986 $105,397
Short-term investments 7,870 --
Total cash, cash equivalents and
short-term investments 138,856 105,397
Trade accounts receivable-
Billed, net of allowance of $5,438
and $11,145 123,344 130,691
Unbilled and other 15,051 18,042
Deferred income taxes 5,401 9,134
Income taxes receivable 4,361 35,076
Other current assets 11,805 11,697
Total current assets 298,818 310,037
Property and equipment, net of depreciation
of $89,208 and $89,529 33,004 38,218
Software, net of amortization of $73,436
and $62,957 28,053 37,780
Goodwill 217,794 219,199
Client contracts, net of amortization of
$59,301 and $50,973 52,408 58,136
Deferred income taxes 46,155 53,327
Other assets 8,536 8,078
Total assets $684,768 $724,775
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $-- $45,137
Client deposits 19,362 17,175
Trade accounts payable 19,852 21,291
Accrued employee compensation 30,870 32,415
Deferred revenue 46,078 52,655
Income taxes payable 17,816 20,723
Arbitration charge payable -- 25,181
Other current liabilities 20,873 25,818
Total current liabilities 154,851 240,395
Non-current liabilities:
Long-term debt, net of current maturities 230,000 183,788
Deferred revenue 5,389 3,270
Other non-current liabilities 4,148 6,537
Total non-current liabilities 239,537 193,595
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; 51,077,602
shares and 53,788,062 shares outstanding 596 593
Additional paid-in capital 296,705 281,784
Deferred employee compensation (1,757) (4,458)
Accumulated other comprehensive income:
Unrealized gain (loss) on short-term
investments, net of tax (2) 1
Cumulative translation adjustments 6,467 6,519
Treasury stock, at cost, 8,482,496 shares
and 5,499,796 shares (224,008) (171,111)
Accumulated earnings 212,379 177,457
Total stockholders' equity 290,380 290,785
Total liabilities and stockholders' equity $684,768 $724,775
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
Revenues:
Processing and
related services
(inclusive in 2003
of $13,472 charge
for arbitration
ruling attributable
to the third quarter
of 2003) $80,748 $79,369 $242,775 $261,586
Software 9,644 10,600 25,390 32,912
Maintenance (inclusive
in 2003 of $450
charge for arbitration
ruling attributable
to the third quarter
of 2003) 24,636 23,676 73,340 68,907
Professional services 18,045 17,544 51,595 52,077
133,073 131,189 393,100 415,482
Charge for arbitration
ruling attributable
to periods prior to
July 1, 2003 -- (105,679) -- (105,679)
Total revenues 133,073 25,510 393,100 309,803
Cost of revenues:
Cost of processing
and related services 37,977 36,523 106,402 106,199
Cost of software
and maintenance 17,295 18,546 50,731 54,251
Cost of professional
services 17,177 16,778 46,943 50,006
Total cost of revenues 72,449 71,847 204,076 210,456
Gross margin (loss)
(exclusive of
depreciation) 60,624 (46,337) 189,024 99,347
Operating expenses:
Research and development 15,035 14,322 45,257 46,742
Selling, general and
administrative 20,556 25,439 66,021 87,459
Depreciation 3,535 4,529 10,688 13,462
Restructuring charges 91 3,451 2,387 7,603
Total operating
expenses 39,217 47,741 124,353 155,266
Operating income (loss) 21,407 (94,078) 64,671 (55,919)
Other income (expense):
Interest expense (1,811) (3,291) (8,049) (10,647)
Write-off of deferred
financing costs -- -- (6,569) --
Interest and investment
income, net 536 381 1,092 1,112
Other, net 1,261 753 211 3,582
Total other (14) (2,157) (13,315) (5,953)
Income (loss) before
income taxes 21,393 (96,235) 51,356 (61,872)
Income tax (provision)
benefit (5,060) 42,461 (16,434) 28,524
Net income (loss) $16,333 $(53,774) $34,922 $(33,348)
Basic net income
(loss) per common
share:
Net income (loss)
available to common
stockholders $0.33 $(1.05) $0.69 $(0.65)
Weighted average
common shares 49,565 51,456 50,844 51,372
Diluted net income
(loss) per common
share:
Net income (loss)
available to common
stockholders $0.32 $(1.05) $0.68 $(0.65)
Weighted average
common shares 50,324 51,456 51,558 51,372
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
Nine Months Ended
September 30, September 30,
2004 2003
Cash flows from operating activities:
Net income (loss) $34,922 $(33,348)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities -
Depreciation 10,688 13,462
Amortization 20,328 18,684
Restructuring charge for abandonment
of facilities 654 3,234
Gain on short-term investments (4) --
Write-off of deferred financing costs 6,569 --
Deferred income taxes 10,927 461
Tax benefit of stock options exercised 1,253 15
Stock-based employee compensation 11,448 4,067
Changes in operating assets and
liabilities:
Trade accounts and other
receivables, net 10,752 18,048
Other current and non-current assets (428) 829
Arbitration charge payable (25,181) 119,601
Income taxes payable/receivable 29,183 (44,774)
Accounts payable and accrued
liabilities (9,332) (12,284)
Deferred revenues (4,823) 10,814
Net cash provided by operating
activities 96,956 98,809
Cash flows from investing activities:
Purchases of property and equipment (5,454) (6,706)
Purchases of short-term investments (14,479) (7,782)
Proceeds from sale of short-term
investments 6,610 --
Acquisition of businesses and assets,
net of cash acquired (699) (2,380)
Acquisition of and investments in
client contracts (2,254) (1,584)
Net cash used in investing
activities (16,276) (18,452)
Cash flows from financing activities:
Proceeds from issuance of common stock 5,564 1,310
Repurchase of common stock (53,538) (207)
Proceeds from long-term debt 230,000 --
Payments on long-term debt (228,925) (41,075)
Payments of deferred financing costs (8,127) (87)
Net cash used in financing
activities (55,026) (40,059)
Effect of exchange rate fluctuations
on cash (65) 941
Net increase in cash and cash equivalents 25,589 41,239
Cash and cash equivalents, beginning
of period 105,397 94,424
Cash and cash equivalents, end of period $130,986 $135,663
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period
for -
Interest $5,059 $8,321
Income taxes (24,537) 15,606
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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