Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
Liz Bauer, Senior Vice President
(303) 804-4065
E-mail: liz_bauer@csgsystems.com
CSG SYSTEMS INTERNATIONAL, INC. REPORTS
FIRST QUARTER 2004 RESULTS
Revenues of $130.4 Million;
GAAP Net Income of $0.21 Per Diluted Share
ENGLEWOOD, COLO. (April 27, 2004) — CSG Systems International, Inc. (Nasdaq: CSGS), a leading provider of customer care and billing solutions, today reported results for the quarter ended March 31, 2004.
First Quarter 2004 Highlights:
| • | GAAP results were as follows:total revenues were $130.4 million;operating income was $21.3 million; andnet incomeper diluted share was $0.21. |
| • | Cash flows from operations for the quarter ended March 31, 2004 were $32.0 million, which reflects the impact of the $25.2 million arbitration payment made to Comcast and the receipt of income tax refunds of approximately $34 million, both of which occurred during the quarter (see CSG’s Form 10-K dated March 14, 2004 for additional discussion of the arbitration ruling and income tax refunds). |
| • | CSG’s Broadband Services Division (BSD) signed a new five-year contract with Comcast Corporation; extended its contract with Echostar Communications, its second largest customer; signed a five-year statement processing agreement with Cox Communications; and after quarter end signed a new five-year agreement with Adelphia Communications, which includes services related to Adelphia’s delivery of Voice over IP services. |
| • | CSG’s Global Software Services Division (GSS) signed a number of contracts during the quarter including several new customer wins in the EMEA and North American regions and expanded relationships with several customers including British Telecommunications, Beijing Telecom, BSNL, Level 3, Embratel and CANTV. |
| • | Interest in CSG’s newly introduced Kenan FX business framework continued with eight additional carriers choosing to upgrade or implement the solution. This brings the total Kenan FX customers to 14. |
“We are starting to see signs of an improving environment, which I believe is evident in this quarter’s performance,” said Neal Hansen, chairman and chief executive officer of CSG Systems International, Inc. “Our Kenan FX suite is being extremely well-received by the market; we solidified our relationships with Comcast and Echostar, our two largest clients; and our customers continued to turn to us to help them grow their revenues and run their operations more efficiently.”
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Summary Results of Operations Information (unaudited)
(in thousands, except per share amounts and percentages):
Three Months Ended March 31, | |||||||||
| 2004 | 2003 (2) | Percent Change | |||||||
Total revenues | $ | 130,364 | $ | 141,932 | (8 | %) | |||
Operating income | 21,284 | 17,856 | 19 | % | |||||
Net income | 10,833 | 8,707 | 24 | % | |||||
Net income per diluted share | 0.21 | 0.17 | 24 | % | |||||
Certain non-cash expenses (1): | |||||||||
Depreciation | 3,636 | 4,599 | (21 | %) | |||||
Amortization | 6,321 | 6,591 | (4 | %) | |||||
Stock-based employee compensation | 4,145 | 1,295 | 220 | % | |||||
Total | $ | 14,102 | $ | 12,485 | 13 | % | |||
| (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 first quarter of 2003 to reflect the inclusion of additional stock-based employee compensation expense of approximately $0.1 million. |
First Quarter 2004 Results
Processing revenues for the first quarter of 2004 were $81.1 million, compared to $91.2 million for the same period last year and $80.8 million for the fourth quarter of 2003. 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 25 percent year-over-year to $7.6 million and decreased 10 percent from the fourth quarter of 2003. Maintenance revenues generated $25.1 million of revenue in the quarter, a 12 percent increase when compared to the same period last year and a two percent increase when compared to the fourth quarter of 2003. Compared to the first quarter of last year, professional services decreased nine percent to $16.5 million, however, increased four percent compared to the fourth quarter of 2003.
Net income presented under generally accepted accounting principles (“GAAP”) for the first quarter of 2004 was $10.8 million, or $0.21 per diluted share. The first quarter results for 2004 were reduced by restructuring charges of approximately $2.2 million, or $0.02 per diluted share. GAAP net income for the first quarter of 2003 was $8.7 million, or $0.17 per diluted share. The first quarter 2003 results were reduced by approximately $3.2 million, or $0.04 per diluted share, due to restructuring charges. The increase in net income between the first quarter of 2004 and 2003 is primarily due to lower operating expenses resulting primarily from various cost reduction initiatives implemented by CSG.
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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 March 31, 2004 | ||||||||||||||||
| Broadband Services Division | GSS Division | Corporate | Total | |||||||||||||
Processing revenues | $ | 80,444 | $ | 688 | $ | — | $ | 81,132 | ||||||||
Software revenues | 888 | 6,749 | — | 7,637 | ||||||||||||
Maintenance revenues | 5,127 | 19,924 | — | 25,051 | ||||||||||||
Professional services revenues | 144 | 16,400 | — | 16,544 | ||||||||||||
Total revenues | 86,603 | 43,761 | — | 130,364 | ||||||||||||
Segment operating expenses (3) | 49,255 | 42,569 | 15,105 | 106,929 | ||||||||||||
Contribution margin (loss) (3) | $ | 37,348 | $ | 1,192 | $ | (15,105 | ) | $ | 23,435 | |||||||
Contribution margin (loss) percentage | 43.1 | % | 2.7 | % | N/A | 18.0 | % | |||||||||
| Three Months Ended March 31, 2003 (4) | ||||||||||||||||
| Broadband Services Division | GSS Division | Corporate | Total | |||||||||||||
Processing revenues | $ | 90,449 | $ | 727 | $ | — | $ | 91,176 | ||||||||
Software revenues | 1,669 | 8,495 | — | 10,164 | ||||||||||||
Maintenance revenues | 5,029 | 17,374 | — | 22,403 | ||||||||||||
Professional services revenues | 370 | 17,819 | — | 18,189 | ||||||||||||
Total revenues | 97,517 | 44,415 | — | 141,932 | ||||||||||||
Segment operating expenses (3) | 51,635 | 51,322 | 17,960 | 120,917 | ||||||||||||
Contribution margin (loss) (3) | $ | 45,882 | $ | (6,907 | ) | $ | (17,960 | ) | $ | 21,015 | ||||||
Contribution margin (loss) percentage | 47.1 | % | (15.6 | %) | N/A | 14.8 | % | |||||||||
| (3) | CSG’s segment operating expenses and contribution margin (loss), determined in accordance with GAAP, exclude restructuring charges of $2.2 million and $3.2 million, respectively, for the three months ended March 31, 2004 and 2003. |
| (4) | The respective segment results have been restated for the first quarter of 2003 to reflect the inclusion of additional stock-based compensation expense of approximately $0.1 million 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 March 31, 2004 were 43.5 million compared to 44.1 million as of December 31, 2003, a one percent decrease. During the quarter, certain contracts were renewed in which the definition of subscriber billing units were modified, having the effect of lowering the subscriber volume counts processed. The annualized revenue per processing unit for the first quarter of 2004 was $7.38 compared to an annualized revenue per processing unit of $7.33 for the fourth quarter of 2003.
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In addition, this quarter BSD extended its contract with Echostar Communications; signed a new contract with Comcast which includes financial minimums; signed a five-year statement processing contract with Cox Communications for its entire customer base; and signed a new five-year agreement with Adelphia that includes services related to Adelphia’s delivery of Voice over IP services.
Global Software Services Division
The GSS Division signed several new customers in the quarter, including several new customers in Europe and North America.
One of the new customers, a large mobile operator, serving approximately 12 million consumers, will use the CSG Total Care solution to provide the customer self-care component of their new customer management platform. The solution will enable the service provider to maintain a holistic view of its entire subscriber base, resulting in better service and updated customer information system-wide in real-time. In addition, eight service providers, including two new customers, have signed up for the new Kenan FX framework, bringing the total number of FX customers to 14.
CSG also expanded its relationship with a number of customers this quarter including British Telecommunications, Britain’s largest telecommunications provider; Beijing Telcom, a wholly-owned subsidiary of China Telecom; BSNL, India’s leading wireless provider; Embratel, one of Brazil’s largest telecommunications providers; CANTV, one of Venezuela’s largest telecommunications providers; and Level 3, an international communications and information services company.
Financial Condition
As of March 31, 2004, CSG had cash and short-term investments of $105.7 million, compared to $105.4 million, as of December 31, 2003. Billed net accounts receivable were $137.6 million as of March 31, 2004, compared to $130.7 million as of December 31, 2003.
In March 2004, CSG made the $30 million mandatory payment required as part of its amended credit agreement, using the proceeds from the income tax refunds received in the first quarter. CSG’s scheduled principal payments within the next 12 months are $19.6 million, with the next payment due on June 30, 2004 in the amount of $1.9 million.
Cash flows from operations for the quarter ended March 31, 2004 were $32.0 million, compared to $22.2 million for the same period in 2003, an increase of $9.8 million. Cash flows from operations for the first quarter of 2004 reflects the impact of the $25.2 million arbitration payment made to Comcast during the first quarter of 2004 and the receipt of the income tax refunds of approximately $34 million. Absent the impact of these items, cash flows from operations were relatively consistent between periods.
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During the first quarter of 2004, CSG did not acquire any of its outstanding common stock under its authorized stock repurchase program.
Second Quarter and Full Year 2004 Financial Guidance
“Our financial guidance for the second quarter is reflective of the increased activity that we are seeing in the marketplace,” Peter Kalan, chief financial officer, said. “For the second quarter, we are expecting revenues of between $127 million and $134 million and earnings per diluted share of between 20 and 25 cents.
“Based on our tight cost controls, we are raising guidance for 2004 earnings per diluted share, while maintaining our previous revenue guidance. In 2004, we are expecting revenues of between $515 million and $530 million,” Kalan added. “In addition, we are increasing our earnings per diluted share guidance to 88 cents and 96 cents.
“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 $28 million or 33 cents per diluted share, depreciation expense of approximately $16 million or 19 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 first quarter of 2004 as we are not able to estimate them today.”
Conference Call
CSG will host a one-hour conference call on Tuesday, April 27, at 5 p.m. EDT, to discuss CSG’s first quarter results. The call will be carried live and archived on the Internet. A link to the conference call is available atwww.csgsystems.com.
Additional Information
For additional information about CSG, please visit CSG’s web site atwww.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 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 Company’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
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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 that market; 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) CSG’s ability to realize the expected savings from its cost reductions programs, while simultaneously not jeopardizing its revenue opportunities.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.
FINANCIALS TO FOLLOW
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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED
(in thousands, except share and per share amounts)
March 31, 2004 | December 31, 2003 | |||||||
| ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 104,520 | $ | 105,397 | ||||
Short-term investments | 1,216 | — | ||||||
Total cash, cash equivalents and short-term investments | 105,736 | 105,397 | ||||||
Trade accounts receivable- | ||||||||
Billed, net of allowance of $11,397 and $11,145 | 137,631 | 130,691 | ||||||
Unbilled and other | 14,409 | 18,042 | ||||||
Deferred income taxes | 7,673 | 9,134 | ||||||
Income taxes receivable | 4,353 | 35,076 | ||||||
Other current assets | 10,357 | 11,697 | ||||||
Total current assets | 280,159 | 310,037 | ||||||
Property and equipment, net of depreciation of $91,712 and $89,529 | 36,051 | 38,218 | ||||||
Software, net of amortization of $66,487 and $62,957 | 34,527 | 37,780 | ||||||
Goodwill | 219,404 | 219,199 | ||||||
Client contracts, net of amortization of $53,205 and $50,973 | 55,363 | 57,458 | ||||||
Deferred income taxes | 50,674 | 53,327 | ||||||
Other assets | 8,770 | 8,756 | ||||||
Total assets | $ | 684,948 | $ | 724,775 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | $ | 19,624 | $ | 45,137 | ||||
Client deposits | 18,963 | 17,175 | ||||||
Trade accounts payable | 20,850 | 21,291 | ||||||
Accrued employee compensation | 23,807 | 32,415 | ||||||
Deferred revenue | 57,510 | 52,655 | ||||||
Income taxes payable | 25,388 | 20,723 | ||||||
Arbitration charge payable | — | 25,181 | ||||||
Other current liabilities | 23,413 | 25,818 | ||||||
Total current liabilities | 189,555 | 240,395 | ||||||
Non-current liabilities: | ||||||||
Long-term debt, net of current maturities | 179,301 | 183,788 | ||||||
Deferred revenue | 3,756 | 3,270 | ||||||
Other non-current liabilities | 5,415 | 6,537 | ||||||
Total non-current liabilities | 188,472 | 193,595 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; | — | — | ||||||
Common stock, par value $.01 per share; 100,000,000 shares authorized; | 593 | 593 | ||||||
Additional paid-in capital | 285,519 | 281,784 | ||||||
Deferred employee compensation | (3,891 | ) | (4,458 | ) | ||||
Accumulated other comprehensive income: | ||||||||
Unrealized gain on short-term investments, net of tax | 1 | 1 | ||||||
Cumulative translation adjustments | 7,520 | 6,519 | ||||||
Treasury stock, at cost, 5,499,796 shares | (171,111 | ) | (171,111 | ) | ||||
Accumulated earnings | 188,290 | 177,457 | ||||||
Total stockholders’ equity | 306,921 | 290,785 | ||||||
Total liabilities and stockholders’ equity | $ | 684,948 | $ | 724,775 | ||||
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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)
| Three Months Ended | ||||||||
March 31, 2004 | March 31, 2003 | |||||||
Revenues: | ||||||||
Processing and related services | $ | 81,132 | $ | 91,176 | ||||
Software | 7,637 | 10,164 | ||||||
Maintenance | 25,051 | 22,403 | ||||||
Professional services | 16,544 | 18,189 | ||||||
Total revenues | 130,364 | 141,932 | ||||||
Cost of revenues: | ||||||||
Cost of processing and related services | 33,806 | 34,119 | ||||||
Cost of software and maintenance | 16,274 | 18,310 | ||||||
Cost of professional services | 14,150 | 18,555 | ||||||
Total cost of revenues | 64,230 | 70,984 | ||||||
Gross margin (exclusive of depreciation) | 66,134 | 70,948 | ||||||
Operating expenses: | ||||||||
Research and development | 15,840 | 15,498 | ||||||
Selling, general and administrative | 23,223 | 29,836 | ||||||
Depreciation | 3,636 | 4,599 | ||||||
Restructuring charges | 2,151 | 3,159 | ||||||
Total operating expenses | 44,850 | 53,092 | ||||||
Operating income | 21,284 | 17,856 | ||||||
Other income (expense): | ||||||||
Interest expense | (3,554 | ) | (3,874 | ) | ||||
Interest and investment income, net | 283 | 288 | ||||||
Other | (513 | ) | 386 | |||||
Total other | (3,784 | ) | (3,200 | ) | ||||
Income before income taxes | 17,500 | 14,656 | ||||||
Income tax provision | (6,667 | ) | (5,949 | ) | ||||
Net income | $ | 10,833 | $ | 8,707 | ||||
Basic net income per common share: | ||||||||
Net income available to common stockholders | $ | 0.21 | $ | 0.17 | ||||
Weighted average common shares | 51,682 | 51,306 | ||||||
Diluted net income per common share: | ||||||||
Net income available to common stockholders | $ | 0.21 | $ | 0.17 | ||||
Weighted average common shares | 52,255 | 51,485 | ||||||
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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
| Three Months Ended | ||||||||
March 31, 2004 | March 31, 2003 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 10,833 | $ | 8,707 | ||||
Adjustments to reconcile net income to net cash provided by operating activities— | ||||||||
Depreciation | 3,636 | 4,599 | ||||||
Amortization | 6,321 | 6,591 | ||||||
Restructuring charge for abandonment of facilities | 595 | 683 | ||||||
Deferred income taxes | 4,162 | (64 | ) | |||||
Tax benefit of stock options exercised | 7 | 2 | ||||||
Stock-based employee compensation | 4,145 | 1,295 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts and other receivables, net | (2,079 | ) | (6,125 | ) | ||||
Other current and non-current assets | 1,344 | (97 | ) | |||||
Arbitration charge payable | (25,181 | ) | — | |||||
Income taxes payable/receivable | 35,192 | 1,599 | ||||||
Accounts payable and accrued liabilities | (11,515 | ) | (11,990 | ) | ||||
Deferred revenues | 4,505 | 17,022 | ||||||
Net cash provided by operating activities | 31,965 | 22,222 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,406 | ) | (2,262 | ) | ||||
Purchases of short-term investments | (1,216 | ) | (6 | ) | ||||
Acquisition of businesses and assets, net of cash acquired | (307 | ) | (835 | ) | ||||
Acquisition of and investments in client contracts | (431 | ) | (290 | ) | ||||
Net cash used in investing activities | (3,360 | ) | (3,393 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 357 | 473 | ||||||
Repurchase of common stock | (213 | ) | — | |||||
Payments on long-term debt | (30,000 | ) | (1,075 | ) | ||||
Payments of deferred financing costs | (247 | ) | (87 | ) | ||||
Net cash used in financing activities | (30,103 | ) | (689 | ) | ||||
Effect of exchange rate fluctuations on cash | 621 | 768 | ||||||
Net increase (decrease) in cash and cash equivalents | (877 | ) | 18,908 | |||||
Cash and cash equivalents, beginning of period | 105,397 | 94,424 | ||||||
Cash and cash equivalents, end of period | $ | 104,520 | $ | 113,332 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid (received) during the period for— | ||||||||
Interest | $ | 3,376 | $ | 3,100 | ||||
Income taxes | (34,114 | ) | 3,633 | |||||
