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 (as amended on October 10, 2000)
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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 as amended, 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, and print and mail services.
The AT&T Contract contains 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, as well as 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. Should the Company fail to meet its obligations
under the AT&T Contract, and should AT&T be successful in any action to either
terminate the AT&T Contract in whole or in part, or collect damages caused by
an alleged breach, it would have a material impact on the Company's results of
operations. Indeed, in the Company's third quarter ended September 30, 2000,
AT&T filed a Demand for Arbitration relating to the AT&T Contract, causing a
significant drop in the trading price of the Company's common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional discussion of the arbitration claim and the Company's
business relationship with AT&T.
Business Activities and Dependence On AT&T
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AT&T completed its merger with Tele-Communications, Inc. (TCI) in March 1999 and
recently completed its merger with MediaOne Group, Inc. (MediaOne). During the
nine months ended September 30, 2000 and 1999, revenues from AT&T and affiliated
companies generated under the AT&T Contract represented approximately 47.4% and
47.5% of total revenues, respectively. The Company expects to continue to
generate a significant portion of its total revenues from AT&T and affiliated
companies in the future. There are inherent risks whenever this large of a
percentage of total revenues is concentrated with one customer. One such risk is
that, should AT&T's business generally decline or not grow as rapidly as
anticipated, it would have a material impact on the Company's results of
operations.
If the Company were to fail to continue to perform successfully under the AT&T
Contract, that would have a material adverse effect on the financial condition
and results of operations of the Company. Likewise, if AT&T were to breach its
material obligations to the Company, that 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.
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 (i) for five of the seven cable television providers,
and (ii) 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.