Exhibit 99.01
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS
CSG Systems International, Inc. and its subsidiaries (collectively, the Company)
or their representatives from time to time may make or may have made certain
forward-looking statements, whether orally or in writing, including without
limitation, any such statements made or to be made in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in its various SEC filings or orally in conferences or
teleconferences. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to ensure to the fullest
extent possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995.
ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY
STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
This list of factors is likely not exhaustive. The Company operates in a rapidly
changing and evolving business involving the converging communications markets,
and new risk factors will likely emerge. Management cannot predict all of the
important risk factors, nor can it assess the impact, if any, of such risk
factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
in any forward-looking statements.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL BE
ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL
RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND
THAT SUCH DIFFERENCES MAY BE MATERIAL.
RELIANCE ON CCS
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The Company derived approximately 78.3% and 78.0% of its total revenues from its
primary product, Communications Control System, and related products and
services (collectively, "CCS") in the years ended December 31, 1999 and 1998,
respectively. CCS is expected to provide the substantial majority of the
Company's total revenues in the foreseeable future.
The Company continues to develop new products and services to address the
evolving needs of its new and existing clients as they roll out new product
offerings and enter new markets. A substantial portion of the Company's new
products and services require enhancements to the core functionality of CCS.
There is an inherent risk of technical problems in maintaining and operating CCS
as its complexity is increased. The Company's results will depend upon
continued market acceptance of CCS, as well as the Company's ability to continue
to adapt, modify, maintain, and operate CCS to meet the changing needs of its
clients without sacrificing the reliability or quality of service. Any
reduction in demand for CCS would have a material adverse effect on the
financial condition and results of operations of the Company.
AT&T RELATIONSHIP
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Contract Rights and Obligations
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The AT&T Contract had an original term of 15 years and expires in 2012. The
AT&T Contract includes minimum financial commitments by AT&T over the life of
the contract, and includes exclusive rights for the Company 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. 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,
bringing the total of AT&T and affiliated customers on the Company's system to
approximately 13.6 million.
The AT&T Contract provides certain performance criteria and other obligations to
be met by the Company. The Company is subject to various remedies and 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. If an audit determines the
Company is not providing such an innovation and it fails to do so in the manner
and time period dictated by the contract, then AT&T would be released from its
exclusivity obligation to the extent necessary to obtain the innovation from a
third party.
To fulfill the AT&T Contract and to remain competitive, the Company believes it
will be required to develop new and advanced features to existing products and
services, as well as new products and services, all of which will require
substantial research and development and implementation and operational
aptitude. AT&T has the right to terminate the AT&T Contract in the event of
certain defaults by the Company. To date, the Company believes it has complied
with the terms of the contract. The termination of the AT&T Contract or of any
of AT&T's commitments under the contract would have a material adverse effect on
the financial condition and results of operations of the Company.
Business Activities and Dependence On AT&T
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AT&T completed its merger with TCI in March 1999 and has consolidated the TCI
operations into AT&T Broadband. During the year ended December 31, 1999 and
1998, revenues from AT&T and affiliated companies represented approximately
50.5% and 37.4% of total revenues, respectively. The Company expects a similar
percentage of its total revenues to be generated from AT&T in 2000.
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 convergence of video,
telephony and Internet services in the residential market is still in its
infancy. As a result, the degree to which converged, broadband services meet
with consumer acceptance and capture significant market share is speculative.
Further, there may be customer care and billing needs of the broadband consumer
that are not foreseen by the Company, or the Company's technological solutions
may prove unable to meet the new and unique needs of the converging
communications markets. The Company expects to continue performing successfully
under the AT&T Contract, but its failure to do so would have a material adverse
effect on the financial condition and results of operations of the Company.
Historically, a substantial portion of the Company's revenue growth resulted
from the sale of software and professional services to AT&T, both of which are
in excess of the minimum financial commitments included in the contract. There
can be no assurance that the Company will continue to sell products and services
to AT&T in excess of the minimum financial commitments included in the contract.
AT&T's Planned Merger with MediaOne
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AT&T and MediaOne have agreed to merge, with AT&T being the surviving entity.
MediaOne has approximately 5.2 million cable television customers, and
approximately 1.0 million of these customers are currently being processed on
the Company's system. The Company is hopeful that it will have the opportunity
to convert the remaining MediaOne customers onto its system soon after the
acquisition is complete. However, there are a number of uncertainties concerning
the transaction, including (i) any preexisting MediaOne contractual obligations,
(ii) the timing of when the transaction is closed, (iii) the structure of the
combined entities, and (iv) operational or other limitations that may be
imposed by governmental authorities. Should the transaction not be consummated,
should it be significantly delayed or its structure or operational authority be
altered materially, it may have a material adverse impact upon the company's
ability to sustain its growth in the wireline video customer care and billing
market.
RENEWAL OF TIME WARNER CONTRACTS
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During the years ended December 31, 1999 and 1998, revenues from Time Warner
represented approximately 10.2% and 14.1% of total revenues, respectively. The
Company provides services to Time Warner under multiple, separate contracts with
various Time Warner affiliates. These contracts are scheduled to expire on
various dates. The failure of Time Warner to renew contracts representing a
significant part of its business with the Company would have a material adverse
effect on the financial condition and results of operations of the Company.
America Online, Inc. ("AOL") and Time Warner have announced their intention to
merge their companies. It would be premature to predict the impact, if any, the
successful consummation of this transaction would have on the financial
condition or results of operations of the Company.
CONVERSION TO THE COMPANY'S SYSTEMS
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The Company's ability to convert new client sites to its customer care and
billing systems on a timely and accurate basis is necessary to meet the
Company's contractual commitments and to achieve its business objectives.
Converting multiple sites under the schedules required by contracts or business
requirements is a difficult and complex process. One of the difficulties in the
conversion process is that competition for the necessary qualified personnel is
intense and the Company may not be successful in attracting and retaining the
personnel necessary to complete conversions on a timely and accurate basis. The
inability of the Company to perform the conversion process timely and accurately
would have a material adverse effect on the results of operations of the
Company.
INDUSTRY CONSOLIDATION AND DEPENDENCE ON CABLE TELEVISION AND DBS INDUSTRIES
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The Company's business is concentrated in the cable television and Direct
Broadcast Satellite ("DBS") industries, making the Company susceptible to a
downturn in those industries. During the years ended December 31, 1999 and 1998,
the Company derived 75.8% and 77.7%, and 15.5% and 13.0% of its total revenues
from companies in the U.S. cable television and U.S. and Canadian DBS
industries, respectively. A decrease in the number of customers served by the
Company's clients, loss of business due to non-renewal of client contracts,
industry consolidation, and/or changing consumer demand for services would
adversely effect the results of operations of the Company.
There can be no assurance that new entrants into the cable television market
will become clients of the Company. Also, there can be no assurance that cable
television providers will be successful in expanding into other segments of the
converging communications markets. Even if major forays into new markets are
successful, the Company may be unable to meet the special billing and customer
care needs of that market. The cable television industry is undergoing
significant ownership changes at an accelerated pace. One facet of these
changes is that cable television providers are consolidating, decreasing the
potential number of buyers for the Company's products and services. Currently,
seven providers account for 85% of the U.S. cable television market and two
providers account for almost the entire U.S. DBS market. The Company processes
at least a portion of the customers for five of the seven cable television
providers, and for both of the DBS providers. For the year ended December 31,
1999, approximately 83% of the Company's total revenues were generated from
companies either under the control of, or expected to come under the control of,
these seven providers. Consolidation in the industry may put at risk the
Company's ability to leverage its existing relationships. Should this
consolidation result in a concentration of cable
television customer accounts being owned by companies with whom the Company does
not have a relationship, or with whom competitors are entrenched, it could
negatively effect the Company's ability to maintain or expand its market share,
thereby adversely effecting the results of operations.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
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The market for customer care and billing systems is characterized by rapid
changes in technology and is highly competitive with respect to the need for
timely product innovations and new product introductions. The Company believes
that its future success in sustaining and growing the annual revenue per
customer account depends upon continued market acceptance of its current
products, including CCS, and its ability to enhance its current products and
develop new products that address the increasingly complex and evolving needs of
its clients. Substantial research and development will be required to maintain
the competitiveness of the Company's products and services in the market.
Development projects can be lengthy and costly, and are subject to changing
requirements, programming difficulties, a shortage of qualified personnel, and
unforeseen factors which can result in delays. In addition, the Company is
typically responsible for the implementation of new products, and depending upon
the specific product, may also be responsible for operations of the product.
There is an inherent risk in the successful implementation and operations of
these products as the technological complexity increases. There can be no
assurance (i) of continued market acceptance of the Company's current products,
(ii) that the Company will be successful in the timely development of product
enhancements or new products that respond to technological advances or changing
client needs, or (iii) that the Company will be successful in supporting the
implementation and/or operations of product enhancements or new products.
CONVERGING COMMUNICATIONS MARKETS
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The Company's growth strategy is based in large part on the continuing
convergence and growth of the cable television, DBS, telecommunications, and on-
line services markets. If these markets fail to converge, grow more slowly than
anticipated, or if providers in the converging markets do not accept the
Company's solution for combining multiple communications services for a
customer, there could be a material adverse effect on the Company's growth.
COMPETITION
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The market for the Company's products and services is highly competitive. The
Company directly competes with both independent providers of products and
services and in-house systems developed by existing and potential clients. In
addition, some independent providers are entering into strategic alliances with
other independent providers, resulting in either a new competitor, or a
competitor(s) with greater resources. Many of the Company's current and
potential competitors have significantly greater financial, marketing,
technical, and other competitive resources than the Company, and many already
have significant international operations. There can be no assurance that the
Company will be able to compete successfully with its existing competitors or
with new competitors.
ATTRACTION AND RETENTION OF PERSONNEL
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The Company's future success depends in large part on the continued service of
its key management, sales, product development, and operational personnel. The
Company is particularly dependent on its executive officers. The Company
believes that its future success also depends on its ability to attract and
retain highly skilled technical, managerial, operational, and marketing
personnel, including, in particular, additional personnel in the areas of
research and development and technical support. Competition for qualified
personnel is intense, particularly in the areas of research and development and
technical support.
The Company may not be successful in attracting and retaining the personnel it
requires, which would adversely effect the Company's ability to meet its
commitments and new product delivery objectives.
VARIABILITY OF QUARTERLY RESULTS
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The Company's quarterly revenues and results, particularly relating to software
and professional services, may fluctuate depending on various factors, including
the timing of executed contracts and the delivery of contracted services or
products, the cancellation of the Company's services and products by existing or
new clients, the hiring of additional staff, new product development and other
expenses, and changes in sales commission policies. No assurance can be given
that results will not vary due to these factors. As the Company's overall
revenue grows, so too does the risk associated with meeting financial
expectations for revenue derived from its software and services offerings. As a
result, there is a proportionately increased likelihood that the Company may
fail to meet revenue and earnings expectations of the analyst community. With
the current volatility of the stock market, should the Company fail to meet
analyst expectations by even a relatively small amount it would most likely have
a disproportionately negative impact upon the market price for the Company's
common stock.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
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The Company relies on a combination of trade secret and copyright laws,
nondisclosure agreements, and other contractual and technical measures to
protect its proprietary rights in its products. The Company also holds a limited
number of patents on some of its newer products, and does not rely upon patents
as a primary means of protecting its rights in its intellectual property. There
can be no assurance that these provisions will be adequate to protect its
proprietary rights. Although the Company believes that its intellectual
property rights do not infringe upon the proprietary rights of third parties,
there can be no assurance that third parties will not assert infringement claims
against the Company or the Company's clients.
INTERNATIONAL OPERATIONS
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The Company's business strategy includes a commitment to the marketing of its
products and services internationally, and the Company has acquired and
established operations outside of the U.S. The Company is subject to certain
inherent risks associated with operating internationally. Risks include product
development to meet local requirements such as the conversion to EURO currency,
difficulties in staffing and management, reliance on independent distributors or
strategic alliance partners, fluctuations in foreign currency exchange rates,
compliance with foreign regulatory requirements, variability of foreign economic
conditions, changing restrictions imposed by U.S. export laws, and competition
from U.S.-based companies which have firmly established significant
international operations. There can be no assurance that the Company will be
able to manage successfully the risks related to selling its products and
services in international markets.
INTEGRATION OF ACQUISITIONS
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As part of its growth strategy, the Company seeks to acquire assets, technology,
and businesses which would provide the technology and technical personnel to
expedite the Company's product development efforts, provide complementary
products or services or provide access to new markets and clients. Acquisitions
involve a number of risks and difficulties, including expansion into new
geographic markets and business areas, the requirement to understand local
business practices, the diversion of management's attention to the assimilation
of acquired operations and personnel, potential adverse short-term effects on
the Company's operating results, and the amortization of acquired intangible
assets.
SYSTEM SECURITY
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The end users of the Company systems are continuously connected to the Company's
products through a variety of public and private telecommunications networks.
The Company has plans to integrate the Internet more closely into its product
offerings thereby permitting, for example, a customer to use the Internet to
review account balances, order a pay per view event or execute similar account
management functions. The Company also operates an extensive internal network
of computers and systems used to manage internal communications, financial
information, development data and the like. The Company's product and internal
communications networks and systems carry an inherent risk of failure as a
result of human error, acts of nature and intentional, unauthorized attacks from
computer "hackers." Opening up these networks and systems to permit access via
the Internet increases their vulnerability to unauthorized access and
corruption, as well as increasing the dependency of the systems' reliability on
the availability and performance of the Internet's infrastructure. Certain
system security and other controls for CCS are reviewed annually by an
independent party. The Company has recently undergone a security review of its
internal systems by an independent party, and is currently implementing a plan
intended to minimize the risk of an unauthorized access to the networks and
systems.
The method, manner, cause and timing of an extended interruption or outage in
the Company's networks or systems is impossible to predict. As a result, there
can be no assurances that the networks and systems will not fail, nor that the
Company's business recovery plans will adequately mitigate any damages incurred
as a consequence. In addition, should the Company's networks or systems be
significantly compromised, it would most likely have a material adverse effect
on the operations of the Company, including its ability to meet product delivery
obligations or client expectations. Likewise, should the Company's networks or
systems experience an extended interruption or outage, have their security
compromised or data lost or corrupted, it would most likely result in an
immediate loss of revenue, as well as damaging the reputation of the Company.
Any of these events could have both an immediate, negative impact upon the
Company's short term revenue and profit expectations, as well as its long term
ability to attract and retain new clients.
PRODUCT OPERATIONS AND SYSTEM AVAILABILITY
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The Company's product operations are run in both mainframe and distributed
system computing environments, as follows:
Mainframe Environment
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CCS operates in a mainframe data processing center managed by FDC (the "FDC
Data Center"), with end users dispersed throughout the United States and
Canada. These services are provided under an agreement with FDC, which was
recently extended and is now scheduled to expire June 30, 2005. The Company
believes it could obtain mainframe data processing services from alternative
sources, if necessary. The Company has a business recovery plan as part of
its agreement with FDC should the FDC Data Center suffer an extended business
interruption or outage. This plan is tested on an annual basis.
Distributed Systems Environment
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The Company also operates certain of its new product applications in its own
distributed systems data processing center (the "CSG Data Center") for the
benefit of certain clients. Typically, these distributed product applications
interface to and operate in conjunction with CCS via telecommunication
networks. The Company is currently implementing its business recovery plan for
the CSG Data Center. The Company has extensive experience in running
applications within the mainframe computing platform, and only within the last
few years, began running applications within the CSG Data Center. In
addition, the mainframe computing environment and related technology is mature
and has proven to be a highly reliable and scaleable computing platform. The
distributed
systems computing platform is not at the same level of maturity as the
mainframe computing platform.
The end users of the Company systems are continuously connected to the Company's
products through a variety of public and private telecommunications networks,
and are highly dependent upon the continued availability of the Company's
systems to conduct their business operations. Should the FDC Data Center or CSG
Data Center, or any particular product application or internal system which is
operated within the data centers, as well as the connecting telecommunications
networks, experience an extended business interruption or outage, it could have
an immediate impact to the business operations of the Company's clients, which
could have a material adverse effect on the financial condition and results of
operations of the Company.
YEAR 2000
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The Company's business is dependent upon various computer software programs and
operating systems that utilize dates and process data beyond the year 2000. If
the actions taken by the Company to mitigate its risks associated with the year
2000 are inadequate, there could be a material adverse effect on the financial
condition and results of operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional discussion of the Company's efforts to address the year 2000 risks.