UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 26, 2013
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 0-27512 | 47-0783182 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
9555 Maroon Circle, Englewood, CO | 80112 | |||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (303) 200-2000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 | Entry into a Material Definitive Agreement. |
Summary of Material Definitive Agreement. CSG Systems International, Inc. (CSG) currently generates a material portion of its revenues from Comcast Cable Communications Management, LLC, an affiliate of Comcast Corporation (Comcast), under a multi-year Master Subscriber Management System Agreement (the Previous Agreement). The Previous Agreement was scheduled to expire on December 31, 2012, but was extended through March 31, 2013 through three, one-month extensions, while the parties continued negotiations related to a new longer-term agreement. For 2012, CSG generated approximately 20% of its total revenues from Comcast.
On March 26, 2013, CSG entered into a new CSG Master Subscriber Management System Agreement with Comcast (the Agreement) which supersedes all previous agreements with Comcast. The Agreement includes pricing adjustments effective March 1, 2013 for certain products and services currently used by Comcast. In exchange for these pricing adjustments, the Agreement provides CSG with the following:
| An extension of CSGs relationship with Comcast for an additional four years through February 28, 2017. In addition, the Agreement provides Comcast with the option to extend the Agreement for two consecutive one-year terms by exercising renewal options no later than September 1, 2016 for the first extension option, and September 1, 2017 for the second extension option. |
| The exclusive right to provide print and mail services for those customer accounts processed on CSGs systems. |
| Minimum commitments for the number of Comcast customer accounts to be processed on CSGs systems, which over the term of the Agreement, are expected to be greater and more consistent annually than the customer account commitments contained in the Previous Agreement. |
Consistent with the Previous Agreement, the fees to be generated under the Agreement will be based primarily on monthly charges for processing and related services per Comcast customer account, and various other ancillary services based on actual usage. Certain of the per-unit fees include volume-based pricing tiers, and are subject to annual inflationary price escalators.
Considering the pricing impacts of the Agreement, which are effective March 1, 2013, and CSGs expectation of consistent usage of current products and services by Comcast, CSG anticipates 2013 Comcast revenues may decrease approximately 10% when compared to 2012. The anticipated revenue impact in both the near and long terms may vary depending on the actual level of products and services consumed by Comcast. The revenue impact from the Agreement is only an estimate and actual results may vary depending upon a variety of factors. CSG undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. CSG wishes to ensure that such forward-looking 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. See Risk Factors Related to Forward-Looking Statements below for additional discussions on forward-looking statements.
The Agreement contains certain rights and obligations of both parties, including the following key items: (i) the termination of the Agreement under certain conditions; (ii) various service level commitments; and (iii) remedies and limitation on liabilities associated with specified breaches of contractual obligations.
A copy of the Agreement, with confidential information redacted, will be filed as an exhibit to CSGs Form 10-Q for the quarter ended March 31, 2013.
Risk Factors Related to Forward-Looking Statements. This report contains a number of forward-looking statements (as defined under the Securities Act of 1933, as amended) relative to expectations concerning CSGs business. These forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. One of the key risk factors relating to the Agreement is listed below, but this item is not exhaustive either with respect to CSGs business generally, or the Agreement specifically. Readers are therefore encouraged to review the additional risk factors and related information as described in CSGs reports on Forms 10-K and 10-Q and other filings made with the SEC.
2
| CSG Derives a Significant Portion of Its Revenues From a Limited Number of Clients, and the Loss of the Business of a Significant Client Could Have a Material Adverse Effect on CSGs Financial Position and Results of Operations. |
CSG currently generates over 40% of its total revenues from its three largest clients, which are (in order of size) Comcast, DISH Network Corporation, and Time Warner Cable, Inc., that each individually account for approximately 10% or more of CSGs total revenues. For 2012, CSG generated approximately 20% of its total revenues from Comcast. CSG cannot predict with certainty the level of future products and services to be purchased by Comcast beyond the commitments included in the Agreement.
There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of clients. One such risk is that a significant client could: (i) undergo a formalized process to evaluate alternative providers for services CSG provides; (ii) terminate or fail to renew their contracts with CSG, in whole or in part for any reason; (iii) significantly reduce the number of customer accounts processed on CSGs solutions, the price paid for CSGs services, or the scope of services that CSG provides; or (iv) experience significant financial or operating difficulties. Any such development could have a material adverse effect on CSGs financial position and results of operations and/or trading price of CSGs common stock.
The industry in which CSG conducts its business is highly competitive, and as a result, it is possible that a competitor could increase its market share of customers processed at CSGs expense or a provider could develop their own internal solutions. While CSGs clients may incur some costs in switching to CSGs competitors or their own internally-developed solutions, they may do so for a variety of reasons, including: (i) price; (ii) if CSG does not provide satisfactory solutions; or (iii) if CSG does not maintain favorable relationships.
Item 7.01 | Regulation FD Disclosure. |
The following information is furnished pursuant to Item 7.01 (Regulation FD Disclosure). This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On March 26, 2013, CSG issued two press releases announcing the following: (i) CSG had entered into the Agreement with Comcast, and (ii) CSG revised its 2013 financial guidance as a result of the Agreement. A copy of such press releases are attached to this Form 8-K as Exhibit 99.1 and Exhibit 99.2 and are incorporated into this section by reference.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibit
99.1 | Press release of CSG Systems International, Inc. dated March 27, 2013 | |
99.2 | Press release of CSG Systems International, Inc. dated March 27, 2013 |
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 27, 2013 | ||||
CSG SYSTEMS INTERNATIONAL, INC. | ||||
By: | /s/ Randy R. Wiese | |||
Randy R. Wiese, | ||||
Chief Financial Officer and | ||||
Principal Accounting Officer |
4
Exhibit 99.1
FOR IMMEDIATE RELEASE
CSG Systems International Revises 2013 Financial Guidance
ENGLEWOOD, Colo. United States (March 27, 2013) CSG Systems International, Inc. (NASDAQ: CSGS), a global provider of software- and services-based business support solutions that help clients generate revenue and maximize customer relationships, revised its 2013 financial guidance to reflect the execution of a multi-year customer care and billing contract with Comcast Cable as announced today.
As a result of the financial terms associated with this extension, which are effective as of March 1, 2013, the company is providing revised guidance for its 2013 financial performance as follows:
Revised Guidance |
Previous Guidance | |||
Revenues |
$740 - $760 million | $755 - $775 million | ||
Non-GAAP Operating Income Margin |
Approximately 16% | Approximately 17% | ||
Non-GAAP EPS |
$2.05 - $2.15 | $2.23 - $2.33 | ||
GAAP EPS from continuing operations |
$1.38 - $1.49 | $1.59 - $1.70 | ||
Adjusted EBITDA |
$153 - $158 million | $162 - $167 million | ||
Operating Cash Flows |
$110 - $120 million | $118 - $128 million |
For additional information and reconciliations regarding CSGs use of non-GAAP financial measures, please refer to the attached Exhibit 1 and the Investor Relations section of CSGs website at www.csgi.com.
For more information regarding the contract extension with Comcast Cable, please refer to the Form 8-K filed today with the SEC, which can be found in the investor relations section of the companys website.
About CSG International
CSG Systems International, Inc. (NASDAQ:CSGS) is a market-leading business support solutions and services company serving the majority of the top 100 global communications service providers, including leaders in fixed, mobile and next-generation networks such as AT&T, Comcast, DISH Network, France Telecom, Orange, T-Mobile, Telefonica, Time Warner Cable, Vodafone, Vivo and Verizon. With over 25 years of experience and expertise in voice, video, data and content services, CSG International offers a broad portfolio of licensed and Software-as-a-Service (SaaS)-based products and solutions that help clients compete more effectively, improve business operations and deliver a more impactful customer experience across a variety of touch points. For more information, visit our website at www.csgi.com.
Forward-Looking Statements
This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. Some of these key factors include, but are not limited to the following items:
| CSG derives approximately forty percent of its revenues from its three largest clients; |
| Continued market acceptance of CSGs products and services; |
| CSGs ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner; |
| CSGs ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations; |
| CSGs dependency on the global telecommunications industry, and in particular, the North American telecommunications industry; |
| CSGs ability to meet its financial expectations as a result of increased dependency on software sales, which are subject to greater volatility; |
| Increasing competition in CSGs market from companies of greater size and with broader presence in the communications sector; |
| CSGs ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals; |
| CSGs ability to protect its intellectual property rights; |
| CSGs ability to maintain a reliable, secure computing environment; |
| CSGs ability to conduct business in the international marketplace; |
| CSGs ability to comply with applicable U.S. and International laws and regulations; and |
| Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates. |
This list is not exhaustive and readers are encouraged to review the additional risks and important factors described in CSGs reports on Forms 10-K and 10-Q and other filings made with the SEC.
For more information, contact:
Liz Bauer, Senior Vice President of Investor Relations & Strategic Communications
(303) 804-4065
E-mail: liz.bauer@csgi.com
EXHIBIT 1
CSG SYSTEMS INTERNATIONAL, INC.
DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES
Use of Non-GAAP Financial Measures and Limitations
To supplement its condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), CSG uses non-GAAP operating income, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed in conjunction with its GAAP financial measures, provide investors with greater transparency to the information used by CSGs management in its financial and operational decision making. CSG uses these non-GAAP financial measures for the following purposes:
| Certain internal financial planning, reporting, and analysis; |
| Forecasting and budgeting purposes; |
| Certain management compensation incentives; and |
| Communications with CSGs Board of Directors, stockholders, financial analysts, and investors. |
These non-GAAP financial measures are provided with the intent of providing investors with the following information:
| A more complete understanding of CSGs underlying operational results, trends, and cash generating capabilities; |
| Consistency and comparability with CSGs historical financial results; and |
| Comparability to similar companies, many of which present similar non-GAAP financial measures to investors. |
Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAP financial measures include the following items:
| Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles; |
| The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures; |
| Non-GAAP financial measures do not include all items of income and expense that affect CSGs operations and that are required by GAAP to be included in financial statements; |
| Certain adjustments to CSGs non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSGs financial statements in future periods; and |
| Certain charges excluded from CSGs non-GAAP financial measures are cash expenses, and therefore do impact CSGs cash position. |
CSG compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures as a supplement only. Additionally, CSG provides specific information regarding the treatment of GAAP amounts considered in preparing the non-GAAP financial measures and reconciles each non-GAAP financial measure to the most directly comparable GAAP measure.
Non-GAAP Financial Measures: Basis of Presentation
The table below outlines the exclusions from CSGs non-GAAP financial measures:
Non-GAAP Exclusions |
Operating Income |
EPS | ||
Restructuring charges |
X | X | ||
Acquisition-related charges |
X | X | ||
Stock-based compensation |
X | X | ||
Amortization of acquired intangible assets |
X | X | ||
Amortization of original issue discount (OID) |
| X | ||
Unusual income tax matters |
| X |
CSG believes that excluding certain items in calculating its non-GAAP financial measures provides meaningful supplemental information regarding CSGs performance and these items are excluded for the following reasons:
| Restructuring charges are infrequent expenses that result from cost reduction initiatives and/or significant changes to CSGs business, to include such things as involuntary employee terminations, and facility consolidations and abandonments. These charges are not considered reflective of CSGs recurring core business operating results. The exclusion of these items in calculating CSGs non-GAAP financial measures allows management and investors an additional means to compare CSGs current operating results with historical and future periods. |
| Acquisition-related charges relate to direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSGs recurring core business operating results. These charges typically include expenses related to legal, accounting, and other professional services. The exclusion of these charges in calculating CSGs non-GAAP financial measures allows management and investors an additional means to compare CSGs current financial results with historical and future periods. |
| Stock-based compensation results from CSGs issuance of its common stock to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG, but instead is more dependent on CSGs stock price at the stock grant date, and the employee service period over which the equity awards vest. The exclusion of these expenses in calculating CSGs non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSGs results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSGs business. |
| Amortization of acquired intangible assets is the result of business acquisitions. A portion of the purchase price in an acquisition is allocated to acquired intangible assets (e.g., software, client relationships, etc.), which are then amortized to expense over their estimated useful lives. This annual amortization expense is generally unchanged from the initial estimates, regardless of performance of the acquired business in any one period. Also, the value assigned to acquired intangible assets in a business combination is based on various estimates and valuation techniques, and does not necessarily represent the costs CSG would incur to develop such capabilities internally. Additionally, amortization of acquired intangible assets can be inconsistent in amount and frequency, and can be significantly affected by the timing and size of an acquisition. The exclusion of these expenses in calculating CSGs non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to acquisitions included in CSGs subsequent results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSGs business. |
| The convertible debt securities OID is the result of allocating a portion of the principal balance of the debt at issuance to the equity component of the instrument, as required under current accounting rules. This OID is then amortized to interest expense over the life of the respective convertible debt instrument. The interest expense related to the amortization of the OID is a non-cash expense, and therefore, the exclusion of this item allows investors to further evaluate the cash interest costs of CSGs convertible debt securities for cash flow, liquidity, and debt service purposes. |
| Unusual items within CSGs quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSGs non-GAAP financial measures allows management and investors an additional means to compare CSGs current financial results with historical and future periods. |
CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash flow. Management believes non-GAAP adjusted EBITDA is a useful measure to investors in evaluating CSGs operating performance, liquidity, debt servicing capabilities, and enterprise valuation. CSG defines adjusted EBITDA as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency transaction adjustments, and unusual items, such as restructuring charges, as discussed above. Additionally, management uses non-GAAP free cash flow, among other measures, to assess its financial performance and cash generating capabilities, and believes that it is useful to investors because it shows CSGs cash available to service debt, make strategic acquisitions and investments, repurchase its common stock, and fund ongoing operations. CSG defines non-GAAP free cash flow as net cash flows from operating activities less the purchases of property and equipment.
Non-GAAP Financial Measures 2013 Financial Guidance
Non-GAAP Operating Income Margin:
The reconciliation of GAAP operating income margin to non-GAAP operating income margin, as included in CSGs 2013 full year financial guidance, is as follows:
2013 Guidance |
||||
GAAP operating income margin |
11.0 | % | ||
Restructuring charges (1) |
0.5 | % | ||
Stock-based compensation (2) |
2.0 | % | ||
Amortization of acquired intangible assets (3) |
2.5 | % | ||
|
|
|||
Non-GAAP operating income margin (approximately 16%) |
16.0 | % | ||
|
|
(1) | This represents the pretax impact of restructuring charges of an estimated $2 million on CSGs operating income margin as a percentage of the midpoint of 2013 revenue guidance. |
(2) | This represents the pretax impact of stock-based compensation expense of an estimated $14 million on CSGs operating income margin as a percentage of the midpoint of 2013 revenue guidance. |
(3) | This represents the pretax impact of amortization of acquired intangible assets expense of an estimated $20 million on CSGs operating income margin as a percentage of the midpoint of 2013 revenue guidance. |
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in CSGs 2013 full year financial guidance is as follows:
2013 Guidance Range (4) | ||||||||
Low Range | High Range | |||||||
GAAP EPS |
$ | 1.38 | $ | 1.49 | ||||
Restructuring charges (5) |
0.03 | 0.03 | ||||||
Stock-based compensation (6) |
0.22 | 0.22 | ||||||
Amortization of acquired intangible assets (7) |
0.33 | 0.32 | ||||||
Amortization of OID (8) |
0.09 | 0.09 | ||||||
|
|
|
|
|||||
Non-GAAP EPS |
$ | 2.05 | $ | 2.15 | ||||
|
|
|
|
(4) | The estimated after-tax impact of these items is calculated using: (i) the estimated income taxes related to these items, which includes the impact of the difference between GAAP and non-GAAP pretax income, resulting in an estimated effective income tax rate for non-GAAP purposes of approximately 36%; and (ii) the estimated weighted-average diluted shares outstanding of 32.8 million. |
(5) | This represents the estimated after-tax impact on a per diluted share basis of the full year restructuring charges of approximately $2 million. |
(6) | This represents the estimated after-tax impact on a per diluted share basis of the full year stock-based compensation expense of approximately $14 million. |
(7) | This represents the estimated after-tax impact on a per diluted share basis of the full year amortization of acquired intangible assets expense of approximately $20 million. |
(8) | This represents the estimated after-tax impact on a per diluted share basis of the full year expense related to the amortization of the OID expense for CSGs convertible debt securities of approximately $5 million. |
Non-GAAP Adjusted EBITDA:
CSGs calculation of non-GAAP adjusted EBITDA and the reconciliation of CSGs non-GAAP adjusted EBITDA measure to net income and cash flows from operations are provided below for CSGs 2013 full year financial guidance at the mid-point (in thousands):
2013 | ||||
GAAP operating income |
$ | 83,000 | ||
Restructuring charges |
2,000 | |||
Depreciation |
23,000 | |||
Amortization of acquired intangible assets |
20,000 | |||
Amortization of other intangible assets |
13,000 | |||
Stock-based compensation |
14,000 | |||
|
|
|||
Adjusted EBITDA |
$ | 155,000 | ||
|
|
|||
Adjusted EBITDA as a percentage of revenues |
21 | % | ||
|
|
2013 | ||||
Net income |
$ | 47,000 | ||
Interest expense |
13,000 | |||
Amortization of OID |
5,000 | |||
Interest and investment income and other, net |
(2,000 | ) | ||
Income tax provision |
20,000 | |||
Depreciation |
23,000 | |||
Amortization of acquired of intangible assets |
20,000 | |||
Amortization of other intangible assets |
13,000 | |||
Stock-based compensation |
14,000 | |||
Restructuring charges |
2,000 | |||
|
|
|||
Adjusted EBITDA |
$ | 155,000 | ||
|
|
2013 | ||||
Cash flows from operating activities (midpoint of guidance) |
$ | 115,000 | ||
Income tax provision |
20,000 | |||
Changes in operating assets and liabilities and deferred taxes |
7,000 | |||
Interest expense |
13,000 | |||
Interest and investment income and other, net |
(2,000 | ) | ||
Restructuring charges |
2,000 | |||
|
|
|||
Adjusted EBITDA |
$ | 155,000 | ||
|
|
Free Cash Flow:
CSGs calculation of non-GAAP free cash flow and the reconciliation of CSGs non-GAAP free cash flow measure to cash flows from operating activities is provided below for the indicated period (in thousands):
2013 | ||||
Cash flows from operating activities (midpoint of guidance) |
$ | 115,000 | ||
Purchases of property and equipment |
(35,000 | ) | ||
|
|
|||
Non-GAAP free cash flow |
$ | 80,000 | ||
|
|
Exhibit 99.2
FOR IMMEDIATE RELEASE
CSG Systems International Enters
Into New Contract With Comcast Cable
ENGLEWOOD, Colo. United States (March 27, 2013) CSG Systems International, Inc. (NASDAQ: CSGS), a global provider of software- and services-based business support solutions that help clients generate revenue and maximize customer relationships, today announced that it has entered into a new multi-year customer care and billing agreement with Comcast Cable.
We are pleased to have extended our relationship with Comcast Cable, said Peter Kalan, president and chief executive officer of CSG International. As Comcast Cable continues to innovate the customer experience by giving more choice and control to their customers, CSG will continue to provide our highly dependable, scalable and reliable products and services to help them succeed. For over twenty years, we have been a trusted partner for Comcast Cable and work every day to earn that trust.
At Comcast Cable, we are working to shape the future of media and technology, said Scott Alcott, chief information officer for Comcast Cable. We look for innovative technologies and cost-effective solutions that empower our customers. Were pleased to extend our relationship with a company like CSG International that is well-suited to help us execute on our vision.
For more information regarding the contract with Comcast Cable, please refer to the Form 8-K filed today with the SEC, which can be found in the investor relations section of the companys website.
About CSG International
CSG Systems International, Inc. (NASDAQ:CSGS) is a market-leading business support solutions and services company serving the majority of the top 100 global communications service providers, including leaders in fixed, mobile and next-generation networks such as AT&T, Comcast, DISH Network, France Telecom, Orange, T-Mobile, Telefonica, Time Warner Cable, Vodafone, Vivo and Verizon. With over 25 years of experience and expertise in voice, video, data and content services, CSG International offers a broad portfolio of licensed and Software-as-a-Service (SaaS)-based products and solutions that help clients compete more effectively, improve business operations and deliver a more impactful customer experience across a variety of touch points. For more information, visit our website at www.csgi.com.
For further information:
Liz Bauer
Investor Relations
CSG International
(303) 804-4065
Liz.bauer@csgi.com
Elise Brassell
Media and Industry Analyst Relations
CSG International
(303) 804-4962
Elise.Brassell@csgi.com