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 75.8% and 78.3% of its total revenues from its
primary product, Communications Control System, and related products and
services (collectively, "CCS") in the years ended December 31, 2000 and 1999,
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)
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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
Company also has certain contractual rights to continue to process certain AT&T
customers for a specified time period in the event that AT&T sells a portion of
its customers to another company. During the fourth quarter of 2000, the Company
relinguished its exclusive rights to process AT&T's wireline telephony
customers, and expects these AT&T customers to be fully converted to another
service provider by the end of 2001. The Company does not expect the loss of
these customers to have a material impact on the Company's result of operations,
and this matter has been considered in determining the Company's financial
guidance for 2001.
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 adverse 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. The AT&T
Contract and its amendments (including the amendment executed as part of the
agreement to withdraw the Demand for Arbitration) have been included as exhibits
to the Company's filings with the Securities and Exchange Commission. See the
Company's 2000 10-K 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
completed its merger with MediaOne Group, Inc. (MediaOne) in 2000. During the
three months ended March 31, 2001 and 2000, revenues from AT&T and affiliated
companies represented approximately 61.9% and 50.0% of total revenues,
respectively. The increase in the percentage between periods relates primarily
to the timing and the amount of software purchases by AT&T. 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, 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 has resulted
from the sale of products and 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 AOL TIME WARNER CONTRACTS
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America Online, Inc. ("AOL") and Time Warner completed their merger in 2000, and
now operate under the name AOL Time Warner Inc. ("AOL Time Warner"). During the
years ended December 31, 2000 and 1999, revenues from AOL Time Warner
represented approximately 8.3% and 10.2% of total revenues, respectively. The
Company provides services to AOL Time Warner under multiple, separate contracts
with various AOL Time Warner affiliates. These contracts are scheduled to expire
on various dates. The failure of AOL Time Warner to renew contracts representing
a significant part of its business with the Company would have a material
adverse impact on the financial condition and results of operations of the
Company. It would be premature to predict the impact, if any, the result the AOL
Time Warner merger will 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 impact on the results of operations of the
Company. The Company is currently scheduled to convert approximately 4.8 million
customers (of which approximately 4.0 million are the MediaOne customers
acquired by AT&T in 2000) onto its processing system during the remainder of
2001.
INDUSTRY CONSOLIDATION AND DEPENDENCE ON VIDEO INDUSTRY - CABLE TELEVISION AND
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DBS
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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, 2000 and 1999,
the Company derived 77.7% and 75.8%, and 16.0% and 15.5% 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 video market will become
clients of the Company. Also, there can be no assurance that video 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 both domestically and internationally
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 over 85% of the U.S. cable television
market and two providers account for almost the entire U.S. DBS market. The
Company processes and/or provides statement printing for at least a portion of
the customers (i) for five of the seven cable television providers, and (ii) for
one of the DBS providers. For the year ended December 31, 2000, approximately
72% of the Company's total revenues were generated from companies either under
the control of, or expected to come under the control of, these six 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 processing revenue
per customer account and the software and professional services revenues 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 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, conversions 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 the local
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,
an adverse impact to the Company's overall effective tax rate resulting from (i)
operations in foreign countries with higher tax rates than the United States,
(ii) inefficient use of foreign tax credits, and (iii) the inability to utilize
some or all of losses generated in one or more foreign countries, 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's systems are continuously connected to the
Company's products through a variety of public and private telecommunications
networks. The Company plans to expand its use of the Internet with its product
offerings thereby permitting, for example, our clients' customer to use the
Internet to review account balances, order services 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 periodically undergoes a security review of its
internal systems by an independent party, and has implemented a plan intended to
limit the risk of an unauthorized access to the networks and systems, including
network firewalls, intrusion detection systems and antivirus applications.
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 Company's 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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Several of the Company's new product applications operate in a distributed
systems environment (also known as "open systems"), running on multiple
servers for the benefit of certain clients. The Company recently completed
the migration of these distributed systems servers from its own internal
data center to the FDC Data Center. Under an agreement with FDC that runs
through June 30, 2005, FDC provides the operations monitoring and
facilities management services, while the Company provides hardware,
operating systems and application support.
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 these applications.
The Company and FDC have extensive experience in running applications
within the mainframe computing platform, and only within the last few years
began running applications within a distributed systems environment. 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. In addition,
security attacks on distributed systems throughout the industry are more
prevalent than on mainframe environments due to the open nature of those
systems.
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 any
particular product application or internal system which is operated within the
FDC Data Center or the Company's facilities, 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 impact on the financial
condition and results of operations of the Company, as well as negatively affect
the Company's ability to attract and retain new clients.