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.
NET LOSSES
Although the Company recorded net income for the three months ended June 30,
1998, March 31, 1998 and September 30, 1998, the Company has recorded annual net
losses since inception (October 17, 1994) through December 31, 1997. These net
losses have resulted from several factors, including: (i) amortization of
intangible assets (acquired software, client contracts and related intangibles,
and noncompete agreements and goodwill); (ii) charge for purchased research and
development; (iii) charge for impairment of software development costs; (iv)
charge for impairment of intangible assets; (v) interest expense; (vi) stock-
based employee compensation expense; (vii) extraordinary losses from early
extinguishment of debt; and (viii) discontinued operations. There can be no
assurance that the Company will achieve or sustain profitability in the future.
RELIANCE ON CCS
The Company derived approximately 76.7% and 77.3% of its total revenues from its
primary product, Communications Control System (CCS), and related products and
services in the years ended December 31, 1997 and 1996, respectively. CCS and
related products and services are expected to provide the substantial majority
of the Company's total revenues in the foreseeable future. The Company's results
will depend upon continued market acceptance of CCS and related products and
services, as well as the Company's ability to continue to adapt and modify them
to meet the changing needs of its clients. Any reduction in demand for CCS
would have a material adverse effect on the financial condition and results of
operations of the Company.
DEPENDENCE ON MAJOR CLIENTS
During the nine months ended September 30, 1998 and 1997, revenues from TCI
represented approximately 36.3% and 28.0% of total revenues, and revenues from
Time Warner represented 16.3% and 19.2% of total revenues, respectively. As a
result of the TCI Contract, revenues derived from TCI are expected to increase
as a percentage of revenue. Loss of all or a significant part of the business
of either TCI or Time Warner would have a material adverse effect on the
financial condition and results of operations of the Company.
REQUIREMENTS OF THE TCI CONTRACT
The TCI Contract requires the conversion of a significant number of additional
TCI customers onto the Company's customer care and billing system. The TCI
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 video industry. If an audit determines the Company is
not providing such an innovation and it fails to do so within the schedule
required by the contract, then TCI could be released from its exclusivity
obligation to the extent necessary to obtain the innovation from a third party.
To fulfill the TCI Contract and to remain competitive, the Company believes it
will be required to develop new and advanced features to existing products and
services, new products and services, and new technologies, all of which will
require substantial research and development. TCI also would have the right to
terminate the TCI Contract in the event of certain defaults by the Company. The
termination of the TCI Contract or of any of TCI's commitments under the
contract would have a material adverse effect on the financial condition and
results of operations of the Company.
RENEWAL OF TIME WARNER CONTRACTS
The Company provides services to Time Warner under multiple, separate contracts
with various Time Warner affiliates. These contracts are scheduled to expire at
various times. 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.
CONVERSION TO THE COMPANY'S SYSTEMS
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.
DEPENDENCE ON CABLE TELEVISION INDUSTRY
The Company's business is concentrated in the cable television industry, making
the Company susceptible to a downturn in that industry. During the years ended
December 31, 1997 and 1996, the Company derived 73% and 77%, respectively, of
its revenues from companies in the U.S. cable television industry. A decrease
in the number of customers served by the Company's clients would result in lower
revenues for the Company. In addition, cable television providers are
consolidating, decreasing the potential number of buyers for the Company's
products and services. Furthermore, there can be no assurance that cable
television providers will be successful in expanding into other segments of the
converging communications markets. There can be no assurance that new entrants
into the cable television market will become clients of the Company.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
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 depends upon continued market acceptance of its current
products, including CCS and related products and services, and its ability to
enhance its current products and develop new products that address the
increasingly complex and evolving needs of its clients. In particular, the
Company believes that it must respond quickly to clients' needs for additional
functionality and distributed architecture for data processing. 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. There can be no assurance of continued market acceptance
of the Company's current products or 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.
CONVERGING COMMUNICATIONS MARKETS
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 products and services, there could be a material adverse effect on the
Company's growth.
COMPETITION
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. 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.
CLIENT FAILURE TO RENEW OR UTILIZE CONTRACTS
Substantially all of the Company's revenues are derived from the sale of
services or products under contracts with its clients. The Company does not
have the option to extend unilaterally the contracts upon expiration of their
terms. Many of the Company's contracts do not require clients to make any
minimum purchases, and contracts are cancelable by clients under certain
conditions.
ATTRACTION AND RETENTION OF PERSONNEL
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. Only one of those
executive officers is party to an employment agreement with the Company, and
such agreement is terminable upon 30 days' notice.
The Company believes that its future success also depends on its ability to
attract and retain highly skilled technical, managerial, and marketing
personnel, including, in particular, additional personnel in the areas of
research and development and technical support. Competition for qualified
personnel skilled in these areas is intense. The Company may not be successful
in attracting and retaining the personnel it requires.
VARIABILITY OF QUARTERLY RESULTS
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. Fluctuations in quarterly
results may result in volatility in the market price of the Company's Common
Stock.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secret and copyright laws, patents,
nondisclosure agreements, and other contractual and technical measures to
protect its proprietary rights in its products. 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
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
As part of its growth strategy, the Company seeks to acquire assets, technology,
and businesses that may 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.
YEAR 2000
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 "Year 2000" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional discussion of the Company's efforts concerning year
2000 compliance.
RELATIONSHIP WITH FIRST DATA CORPORATION
The Company has entered into a data processing services agreement with FDC. The
Company is dependent upon FDC to perform these services for the operation of
CCS. The inability of FDC to perform these services satisfactorily could have a
material adverse effect on the financial condition and results of operations of
the Company. The existing agreement is scheduled to expire in December 2001.