FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 0-27512
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0783182
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7887 East Belleview, Suite 1000
Englewood, Colorado 80111
(Address of principal executive offices, including zip code)
(303) 796-2850
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
-----
Shares of common stock outstanding at May 10, 2000: 52,153,448
CSG SYSTEMS INTERNATIONAL, INC.
FORM 10-Q For the Quarter Ended March 31, 2000
INDEX
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999................................................................ 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 ....................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 ................................................ 5
Notes to Condensed Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 13
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................... 14
Signatures........................................................................... 15
Index to Exhibits.................................................................... 16
2
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31, December 31,
2000 1999
------------- ------------
(unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents.................................................................... $ 66,277 $ 48,676
Accounts receivable-
Trade-
Billed, net of allowance of $3,246 and $2,975............................................ 65,264 67,477
Unbilled................................................................................. 4,871 8,311
Other...................................................................................... 1,199 909
Deferred income taxes........................................................................ 1,788 1,972
Other current assets......................................................................... 3,932 2,850
---------- -----------
Total current assets....................................................................... 143,331 130,195
---------- -----------
Property and equipment, net of depreciation of $34,164 and $31,864............................ 30,130 26,507
Software, net of amortization of $37,716 and $37,251.......................................... 5,680 6,145
Noncompete agreements and goodwill, net of amortization of $29,866 and $29,727................ 2,462 2,652
Client contracts and related intangibles, net of amortization of $25,789 and $24,779.......... 54,333 55,343
Deferred income taxes......................................................................... 51,582 52,845
Other assets.................................................................................. 1,091 1,281
---------- -----------
Total assets............................................................................... $ 288,609 $ 274,968
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt......................................................... $ 23,130 $ 21,711
Customer deposits............................................................................ 11,128 10,549
Trade accounts payable....................................................................... 11,543 9,450
Accrued employee compensation................................................................ 9,841 16,386
Deferred revenue............................................................................. 8,941 16,746
Accrued income taxes......................................................................... 13,749 11,710
Other current liabilities.................................................................... 10,790 11,551
---------- -----------
Total current liabilities.................................................................. 89,122 98,103
---------- -----------
Non-current liabilities:
Long-term debt, net of current maturities.................................................... 52,870 59,289
Deferred revenue............................................................................. 470 714
---------- -----------
Total non-current liabilities.............................................................. 53,340 60,003
---------- -----------
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;
52,095,189 shares and 51,638,629 shares outstanding........................................ 529 523
Common stock warrants; 3,000,000 warrants outstanding......................................... 26,145 26,145
Additional paid-in capital.................................................................... 148,391 136,373
Deferred employee compensation................................................................ (18) (48)
Notes receivable from employee stockholders................................................... (61) (115)
Accumulated other comprehensive income-cumulative translation adjustments..................... (223) (120)
Treasury stock, at cost, 815,986 shares and 722,486 shares.................................... (23,403) (20,374)
Accumulated deficit........................................................................... (5,213) (25,522)
---------- -----------
Total stockholders' equity................................................................. 146,147 116,862
---------- -----------
Total liabilities and stockholders' equity................................................. $ 288,609 $ 274,968
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(in thousands, except per share amounts)
Three months ended
-------------------------------------
March 31, March 31,
2000 1999
----------- -------------
Revenues:
Processing and related services..................................... $ 70,627 $ 59,951
Software and professional services.................................. 21,436 11,136
----------- ------------
Total revenues.............................................. 92,063 71,087
----------- ------------
Cost of Revenues:
Cost of processing and related services............................. 25,770 24,036
Cost of software and professional services.......................... 10,516 5,849
----------- ------------
Total cost of revenues...................................... 36,286 29,885
----------- ------------
Gross margin (exclusive of depreciation)............................... 55,777 41,202
----------- ------------
Operating expenses:
Research and development............................................ 9,888 7,620
Selling, general and administrative................................. 10,088 10,946
Depreciation........................................................ 2,812 2,409
----------- ------------
Total operating expenses.................................... 22,788 20,975
----------- ------------
Operating income....................................................... 32,989 20,227
----------- ------------
Other income (expense):
Interest expense.................................................. (1,541) (2,224)
Interest income................................................... 1,263 641
Other............................................................. 7 (21)
----------- ------------
Total other................................................. (271) (1,604)
----------- ------------
Income before income taxes.............................................. 32,718 18,623
Income tax provision................................................ (12,409) (7,041)
----------- ------------
Net income............................................................. $ 20,309 $ 11,582
=========== ============
Basic net income per common share:
Net income available to common stockholders......................... $ 0.39 $ 0.22
=========== ============
Weighted average common shares...................................... 51,857 51,565
=========== ============
Diluted net income per common share:
Net income available to common stockholders......................... $ 0.36 $ 0.21
=========== ============
Weighted average common shares...................................... 56,830 54,216
=========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
Three months ended
------------------------------
March 31, March 31,
2000 1999
------------- -------------
Cash flows from operating activities:
Net income..................................................................................... $ 20,309 $ 11,582
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation................................................................................. 2,812 2,409
Amortization................................................................................. 1,838 3,899
Deferred income taxes........................................................................ 1,446 4,796
Stock-based employee compensation............................................................ 30 73
Changes in operating assets and liabilities:
Trade accounts and other receivables, net.................................................. 5,345 345
Other current and noncurrent assets........................................................ (1,087) (294)
Accounts payable and accrued liabilities................................................... (5,645) (517)
------------- -------------
Net cash provided by operating activities............................................... 25,048 22,293
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment, net....................................................... (6,442) (2,317)
Conversion and other incentive payments........................................................ - (4,601)
------------- -------------
Net cash used in investing activities................................................... (6,442) (6,918)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock......................................................... 7,059 2,305
Repurchase of common stock..................................................................... (2,987) -
Payments on notes receivable from employee stockholders........................................ 27 181
Payments on long-term debt..................................................................... (5,000) (17,250)
------------- -------------
Net cash used in financing activities................................................... (901) (14,764)
------------- -------------
Effect of exchange rate fluctuations on cash...................................................... (104) (169)
------------- -------------
Net increase in cash and cash equivalents......................................................... 17,601 442
Cash and cash equivalents, beginning of period.................................................... 48,676 39,593
------------- -------------
Cash and cash equivalents, end of period.......................................................... $ 66,277 $ 40,035
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest........................................................................................ $ 1,393 $ 1,950
Income taxes.................................................................................... $ 3,942 $ 96
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CSG SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements at March 31, 2000, and for the
three months then ended are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim period. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission (the Company's 1999 10-K). The results of operations for
the three months ended March 31, 2000, are not necessarily indicative of the
results for the entire year ending December 31, 2000.
2. STOCKHOLDERS' EQUITY
Common Stock Warrants. AT&T holds 3.0 million warrants to purchase the
Company's Common Stock at an exercise price of $12 per share. The warrants
expire in September 2002. See additional discussion of the Common Stock
Warrants in the Company's 1999 10-K.
Stock Repurchase Plan. In August 1999, the Company's Board of Directors
approved a stock repurchase plan which authorized the Company at its discretion
to purchase up to a total of 5.0 million shares of its Common Stock from time to
time as market and business conditions warrant. This program represents
approximately 10% of the Company's outstanding shares. During the three months
ended March 31, 2000, the Company repurchased 75,000 shares of Common Stock for
approximately $3.0 million ($39.92 per share). The Company has purchased a
total of 730,500 shares for approximately $23.2 million (a weighted-average
price of $31.81 per share) since the program was announced. The repurchased
shares are held as treasury shares.
3. NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted net income per common share is consistent with the
calculation of basic net income per common share while giving effect to dilutive
potential common shares outstanding during the period. Basic and diluted
earnings per share ("EPS") are presented on the face of the Company's Condensed
Consolidated Statements of Income. No reconciliation of the EPS numerator is
necessary as the basic and diluted net income available to common stockholders
is the same for all periods presented. The reconciliation of the EPS denominator
is as follows (in thousands):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Basic common shares outstanding....................... 51,857 51,565
Dilutive effect of common stock options............... 2,693 2,651
Dilutive effect of common stock warrants.............. 2,280 ---
------ ------
Diluted common shares outstanding..................... 56,830 54,216
====== ======
6
Common Stock options of 23,000 shares and 5,000 shares for the three months
ended March 31, 2000 and 1999, respectively, have been excluded from the
computation of diluted EPS because the exercise prices of these options were
greater than the average market price of the common shares for the respective
periods.
The diluted potential common shares related to the Common Stock warrants were
excluded from the computation of diluted common shares outstanding for the three
months ended March 31, 1999, as the warrants were not considered exercisable.
During the three months ended March 31, 2000, all of the 3.0 million warrants
were considered exercisable.
5. COMPREHENSIVE INCOME
The Company's components of comprehensive income were as follows (in thousands):
Three Months Ended
March 31,
---------------------
2000 1999
---- ----
Net income.............................. $20,309 $11,582
Foreign currency translation
Adjustments............................ (103) (164)
------- -------
Comprehensive income.................... $20,206 $11,418
======= =======
6. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS
Certain March 31, 1999 amounts have been reclassified to conform with the March
31, 2000 presentation.
7. SERVICE AGREEMENTS
The Company has service agreements with First Data Corporation ("FDC") and its
subsidiaries for data processing services, communication charges and other
related services. FDC provides data processing and related services required for
the operation of the Company's CCS system. Effective April 1, 2000, the Company
extended its contract with FDC for data processing services through June 30,
2005. The contract was previously scheduled to expire on December 31, 2001.
8. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition". This SAB provides additional
guidance on revenue recognition criteria and related disclosure requirements.
This SAB is effective for the Company in the second quarter of 2000. Adoption of
this SAB is not expected to have a significant effect on the Company's
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25". The Interpretation
clarifies the application of APB Opinion 25 for certain issues involving
employee stock compensation. The Interpretation is generally effective July 1,
2000. Adoption of this Interpretation is not expected to have a significant
effect on the Company's consolidated financial statements.
7
CSG SYSTEMS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated (in thousands):
Three months ended March 31,
--------------------------------------------------------------
2000 1999
--------------------------------------------------------------
% of % of
Amount Revenue Amount Revenue
------------ ----------- ------------ -----------
Revenues:
Processing and related services................... $ 70,627 76.7% $ 59,951 84.3%
Software and professional services................ 21,436 23.3 11,136 15.7
----------- ---------- ----------- ----------
Total revenues........................... 92,063 100.0 71,087 100.0
----------- ---------- ----------- ----------
Cost of Revenues:
Cost of processing and related services........... 25,770 28.0 24,036 33.8
Cost of software and professional services........ 10,516 11.4 5,849 8.2
----------- ---------- ----------- ----------
Total cost of revenues................... 36,286 39.4 29,885 42.0
----------- ---------- ----------- ----------
Gross margin (exclusive of depreciation)............ 55,777 60.6 41,202 58.0
----------- ---------- ----------- ----------
Operating expenses:
Research and development.......................... 9,888 10.7 7,620 10.7
Selling, general and administrative............... 10,088 11.0 10,946 15.4
Depreciation...................................... 2,812 3.1 2,409 3.4
----------- ---------- ----------- ----------
Total operating expenses................. 22,788 24.8 20,975 29.5
----------- ---------- ----------- ----------
Operating income.................................... 32,989 35.8 20,227 28.5
----------- ---------- ----------- ----------
Other income (expense):
Interest expense................................ (1,541) (1.7) (2,224) (3.1)
Interest income................................. 1,263 1.4 641 0.8
Other........................................... 7 - (21) -
----------- ---------- ----------- ----------
Total other.............................. (271) (0.3) (1,604) (2.3)
----------- ---------- ----------- ----------
Income before income taxes.......................... 32,718 35.5 18,623 26.2
Income tax provision.............................. (12,409) (13.4) (7,041) (9.9)
----------- ---------- ----------- ----------
Net income.......................................... $ 20,309 22.1% $ 11,582 16.3%
=========== ========== =========== ==========
8
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Total revenues for the three months ended March 31, 2000, increased
29.5% to $92.1 million, from $71.1 million for the three months ended March 31,
1999.
Revenues from processing and related services for the three months ended March
31, 2000, increased 17.8% to $70.6 million, from $60.0 million for the three
months ended March 31, 1999. Of the total increase in revenue, approximately
74% resulted from an increase in the number of customers of the Company's
clients which were serviced by the Company and approximately 26% was due to
increased revenue per customer. Customers serviced as of March 31, 2000 and
1999, respectively, were 34.3 million and 30.5 million, an increase of 12.5%.
The increase in the number of customers serviced was due to the conversion of
additional customers by new and existing clients to the Company's systems, and
internal customer growth experienced by existing clients. From January 1, 2000
through March 31, 2000, the Company converted and processed approximately 0.2
million new customers on its systems.
Revenues from software and professional services for the three months ended
March 31, 2000, increased 92.5% to $21.5 million, from $11.1 million for the
three months ended March 31, 1999. The Company sells its software products and
professional services principally to its existing client base to (i) enhance the
core functionality of its service bureau processing application, (ii) increase
the efficiency and productivity of its clients' operations, and (iii) allow
clients to effectively rollout new products and services to new and existing
markets. The increase in revenue between years relates to the continued strong
demand for the Company's existing software products and the rollout of
additional new products and services to meet the changing needs of the Company's
client base.
Total annualized domestic revenue per customer account for the first quarter of
2000 was $10.78, compared to $9.10 for the same period in 1999, an increase of
18.5%. Revenue per customer increased primarily due to increased software sales
to new and existing clients, and to a lesser degree, increased processing
revenue per customer, as follows:
Three Months
Ended March 31
---------------
2000 1999
------ -----
Processing and related services................... $ 8.29 $7.96
Software and professional services................ 2.49 1.14
------ -----
Total.......................................... $10.78 $9.10
====== =====
Cost of Processing and Related Services. Direct processing costs as a
percentage of related processing revenues were 36.5% (63.5% gross margin) for
the three months ended March 31, 2000, compared to 40.1% (59.9% gross margin)
for the three months ended March 31, 1999. The improvement between periods
relates primarily to better overall leveraging of processing costs as a result
of the continued growth of the customer base processed on the Company's system,
and to a lesser degree, a decrease in amortization of client contracts from the
CSG Acquisition, which became fully amortized as of November 30, 1999. Such
amortization was $0.75 million for the first quarter of 1999.
Cost of Software and Professional Services. The cost of software and
professional services as a percentage of related revenues was 49.1% (50.9% gross
margin) for the three months ended March 31, 2000, compared to 52.5% (47.5%
gross margin) for the three months ended March 31, 1999. The improvement
between periods relates primarily to (i) better overall leveraging of costs as a
result of higher software and professional services revenues for the quarter,
and (ii) the timing of the sales cycle for new products and services.
Gross Margin. Overall gross margin for the three months ended March 31, 2000,
increased 35.4% to $55.8 million, from $41.2 million for the three months ended
March 31, 1999, due primarily to revenue growth. The gross margin percentage
increased to 60.6% for the three months ended March 31, 2000, compared to 58.0%
9
for the three months ended March 31, 1999. The overall increase in the gross
margin percentage is due primarily to the increase in gross margin for
processing and related services due to the factors discussed above.
Research and Development Expense. Research and development (R&D) expense for
the three months ended March 31, 2000, increased 29.8% to $9.9 million, from
$7.6 million for the three months ended March 31, 1999. As a percentage of
total revenues, R&D expense stayed the same at 10.7% for the three months ended
March 31, 2000 and 1999. The Company did not capitalize any software
development costs during the three months ended March 31, 2000 and 1999.
The overall increase in the R&D expenditures between periods is due primarily to
increased efforts on several products which are in development and enhancements
of the Company's existing products. The Company's development efforts for the
first quarter of 2000 were focused primarily on the development of products to
(i) increase the efficiencies and productivity of its clients' operations, (ii)
address the systems needed to support the convergence of the communications
markets, (iii) support a web-enabled, customer self-care and electronic bill
presentment/payment application, and (iv) allow clients to effectively rollout
new products and services to new and existing markets, such as residential
telephony, High-Speed Data/ISP and IP markets. The Company expects its
development efforts to focus on similar tasks through the remainder of 2000.
Selling, General and Administrative Expense. Selling, general and
administrative (SG&A) expense for the three months ended March 31, 2000,
decreased 7.8% to $10.1 million, from $10.9 million for the three months ended
March 31, 1999. As a percentage of total revenues, SG&A expense decreased to
11.0% for the three months ended March 31, 2000, from 15.4% for the three months
ended March 31, 1999. The decrease in SG&A expense relates primarily to the
noncompete agreement from the CSG Acquisition becoming fully amortized as of
November 30, 1999. Such amortization was $1.2 million for the first quarter of
1999.
Depreciation Expense. Depreciation expense for the three months ended March 31,
2000, increased 16.7% to $2.8 million, from $2.4 million for the three months
ended March 31, 1999. The increase in expense relates to capital expenditures
made during the last nine months of 1999 and the first three months of 2000 in
support of the overall growth of the Company, consisting principally of (i)
computer hardware and related equipment, (ii) statement processing equipment,
and (iii) facilities expansion. Depreciation expense for all property and
equipment is reflected separately in the aggregate and is not included in the
other components of operating expenses.
Operating Income. Operating income for the three months ended March 31, 2000,
was $33.0 million or 35.8% of total revenues, compared to $20.2 million or 28.5%
of total revenues for the three months ended March 31, 1999. The increase
between years relates to the factors discussed above.
Interest Expense. Interest expense for the three months ended March 31, 2000,
decreased 30.7% to $1.5 million, from $2.2 million for the three months ended
March 31, 1999, with the decrease attributable primarily to (i) scheduled
principal payments on the Company's long-term debt, and (ii) optional
prepayments on long-term debt during 1999. The balance of the Company's long-
term debt as of March 31, 2000, was $76.0 million, compared to $111.0 million as
of March 31, 1999, a decrease of $35.0 million.
Interest Income. Interest income for the three months ended March 31, 2000,
increased 97.0% to $1.3 million, from $0.6 million for the three months ended
March 31, 1999, with the increase attributable primarily to an increase in
operating funds available for investment.
Income Tax Provision. For the three months ended March 31, 2000, the Company
recorded an income tax provision of $12.4 million, or an effective income tax
rate of approximately 38%, which represents the Company's estimate of the
effective book income tax rate for 2000. The Company's effective income tax
rate for 1999 was also approximately 38%. As of March 31, 2000, management
continues to believe that sufficient taxable income will be generated to realize
the entire benefit of its deferred tax assets. The
10
Company's assumptions of future profitable operations are supported by its
strong operating performances over the last several years.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
As of March 31, 2000, the Company's principal sources of liquidity included cash
and cash equivalents of $66.3 million. The Company also has a revolving credit
facility in the amount of $40.0 million, of which there were no borrowings
outstanding. The Company's ability to borrow under the revolving credit
facility is subject to maintenance of certain levels of eligible receivables.
At March 31, 2000, all of the $40.0 million revolving credit facility was
available to the Company. The revolving credit facility expires in September
2002.
As of March 31, 2000 and December 31, 1999, respectively, the Company had $65.3
million and $67.5 million in net billed trade accounts receivable. The Company's
billed trade accounts receivable balance includes billings for several non-
revenue items, such as postage, communication lines, travel and entertainment
reimbursements, sales tax, and deferred items. As a result, the Company
evaluates its performance in collecting its accounts receivable through its
calculation of days billings outstanding (DBO) rather than a typical days sales
outstanding (DSO) calculation. DBO is calculated based on the billings for the
period (including non-revenue items) divided by the average net billed trade
accounts receivable balance for the period. The Company's DBO calculations for
the quarters ended March 31, 2000 and 1999 were 54 days and 60 days,
respectively. Total deferred revenues decreased by approximately $8.0 million
from December 31, 1999 to March 31, 2000, due primarily to performance on
several contracts during the current quarter that had previously been signed and
billed in the latter part of 1999.
During the three months ended March 31, 2000, the Company generated $25.0
million of net cash flow from operating activities. Cash generated from these
sources and the proceeds of $7.1 million from the issuance of common stock
through the Company's stock incentive plans were used to (i) fund capital
expenditures of $6.4 million, (ii) repurchase 75,000 shares of the Company's
Common Stock for $3.0 million under its stock repurchase plan, and (iii) repay
long-term debt of $5.0 million, which included $4.2 million of scheduled
payments and an optional prepayment of $0.8 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the
three months ended March 31, 2000 was $37.5 million or 40.7% of total revenues,
compared to $26.3 million or 36.9% of total revenues for the three months ended
March 31, 1999. EBITDA is presented here as a measure of the Company's debt
service ability and is not intended to represent cash flows for the periods.
Interest rates for the term and revolving credit facilities are chosen at the
option of the Company and are based on the LIBOR rate or the prime rate, plus an
additional spread, with the spread dependent upon the Company's leverage ratio.
As of March 31, 2000, the spread on the LIBOR rate and the prime rate was 0.50%
and 0%, respectively. As of March 31, 2000, the entire amount of the debt was
under a six-month LIBOR contract with an interest rate of 6.54% (i.e., LIBOR at
6.04% plus spread of 0.50%), compared to a weighted average rate of 6.55% at
December 31, 1999.
In August 1999, the Company's Board of Directors approved a stock repurchase
plan which authorized the Company at its discretion to purchase up to a total of
5.0 million shares of its Common Stock from time to time as market and business
conditions warrant. During the three months ended March 31, 2000, the Company
repurchased 75,000 shares of Common Stock for approximately $3.0 million ($39.92
per share). The Company has purchased a total of 730,500 shares for
approximately $23.2 million (a weighted-average price of $31.81 per share) since
the program was announced. The repurchased shares are held as treasury shares.
The Company continues to make significant investments in capital equipment,
facilities, research and development, and at its discretion, may continue to
make stock repurchases. The Company had no
11
significant capital commitments as of March 31, 2000. The Company believes that
cash generated from operations, together with the current cash and cash
equivalents and the amount available under its current revolving credit facility
will be sufficient to meet its anticipated cash requirements for operations,
income taxes, debt service, capital expenditures, and stock repurchases for both
its short and long-term purposes. The Company also believes it has significant
unused borrowing capacity and could obtain additional cash resources by amending
its current credit facility and/or establishing a new credit facility.
Forward-Looking Statements
- --------------------------
This report contains a number of forward-looking statements relative to future
plans of the Company and its expectations concerning the customer care and
billing industry, as well as the converging telecommunications industry it
serves, and similar matters. Such forward-looking statements are based on
assumptions about a number of important factors, and involve risks and
uncertainties that could cause actual results to differ materially from
estimates contained in the forward-looking statements. Some of the risks that
are foreseen by management are contained in Exhibit 99.01 of this report.
Exhibit 99.01 constitutes an integral part of this report, and readers are
strongly encouraged to read that section closely in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
AT&T Contract and Merger
- ------------------------
AT&T completed its merger with Tele-Communications, Inc. (TCI) in March 1999 and
has consolidated the TCI operations into AT&T Broadband. During the three
months ended March 31, 2000 and 1999, revenues from AT&T and affiliated
companies generated under the AT&T Contract represented approximately 50.0% and
44.2% of total revenues, respectively. The AT&T Contract had an original term
of 15 years and expires in 2012. The AT&T Contract has minimum financial
commitments over the term of the contract and includes exclusive rights to
provide customer care and billing products and services for AT&T's offerings of
wireline video, all Internet/high-speed data services, residential wireline
telephony services, and print and mail services. The AT&T Contract provides
certain performance criteria and other obligations to be met by the Company. The
Company is required to perform certain remedial efforts and is subject to
certain penalties if it fails to meet the performance criteria or other
obligations. The Company is also subject to an annual technical audit to
determine whether the Company's products and services include innovations in
features and functions that have become standard in the wireline video industry.
To date, the Company believes it has complied with the terms of the contract.
Since execution of the AT&T Contract in September 1997 through March 31, 2000,
the Company has successfully converted approximately 11 million AT&T cable
television customers onto its system.
AT&T began its efforts to provide convergent communications services in several
United States cities during 1999 and is expected to continue these efforts in
2000. The Company is working closely with AT&T to provide customer care and
billing services to customers in those cities.
The Company expects to continue performing successfully under the AT&T Contract,
and is hopeful that it can continue to sell products and services to AT&T that
are in excess of the minimum financial commitments and exclusive rights included
in the contract.
Year 2000
- ---------
As of the date of this filing, the Company has not experienced any significant
disruptions in its operations as a result of its computer systems rollover to,
and processing of dates within, the year 2000 ("Y2K"). Although the Company has
not experienced any significant disruptions to date, there is no assurance that
the Company will not experience any future Y2K-related disruptions.
12
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
There have been no material changes to the Company's market risks during the
three months ended March 31, 2000. See the Company's 1999 10-K for additional
discussion regarding the Company's market risks.
13
CSG SYSTEMS INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 1-5. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.19L* Thirty-Seventh, Fortieth, Forty-Fourth and Forty-Fifth
Amendments to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and
TCI Cable Management Corporation.
2.27 Third Amendment to Loan Agreement among CSG Systems, Inc.
and CSG Systems International, Inc. as co-borrowers, and
certain lenders and Paribas, as Agent, dated January 24,
2000.
27.01 Financial Data Schedule (EDGAR Version only)
99.01 Safe Harbor for Forward-Looking Statements Under the
Private Securities Litigation Reform Act of 1995-Certain
Cautionary Statements and Risk Factors
(b) Reports on Form 8-K
None
__________________
* Portions of the exhibit have been omitted pursuant to an application for
confidential treatment, and the omitted portions have been filed separately
with the Commission.
14
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000
CSG SYSTEMS INTERNATIONAL, INC.
/s/ Neal C. Hansen
------------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Greg A. Parker
-------------------
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Randy R. Wiese
------------------
Randy R. Wiese
Vice President and Controller
(Principal Accounting Officer)
15
CSG SYSTEMS INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.19L* Thirty-Seventh, Fortieth, Forty-Fourth and Forty-Fifth Amendments
to Restated and Amended CSG Master Subscriber Management
System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation.
2.27 Third Amendment to Loan Agreement among CSG Systems, Inc. and CSG
Systems International, Inc. as co-borrowers, and certain
lenders and Paribas, as Agent, dated January 24, 2000
27.01 Financial Data Schedule (EDGAR Version only)
99.01 Safe Harbor for Forward-Looking Statements Under the Private
Securities Litigation Reform Act of 1995-Certain Cautionary
Statements and Risk Factors
__________________
* Portions of the exhibit have been omitted pursuant to an application for
confidential treatment, and the omitted portions have been filed separately
with the Commission.
16