EX-99.1 2 d529779dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

PRESS RELEASE

For Immediate Release

CSG SYSTEMS INTERNATIONAL REPORTS RESULTS

FOR FIRST QUARTER 2013

ENGLEWOOD, COLO. (April 30, 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 reported results for the quarter ended March 31, 2013.

Key Financial Highlights:

 

   

First quarter 2013 results:

 

   

Total revenues were $180.6 million.

 

   

Non-GAAP operating income was $27.6 million, or 15.3% of total revenues and GAAP operating income was $18.0 million, or 10.0% of total revenues.

 

   

Non-GAAP earnings per diluted share (EPS) was $0.48. GAAP EPS was $0.46.

 

   

Cash flows from operations for the quarter were $22.5 million.

 

   

In March 2013, CSG announced that it had entered into a new multi-year customer care and billing agreement with its largest customer, Comcast, effective March 1, 2013.

 

   

During the quarter, CSG repurchased approximately 329,000 shares of its common stock for $6.5 million (weighted-average price of $19.80 per share) under its stock repurchase program.

“With our major contract renewals secured into 2017, we have reduced the amount of risk associated with our revenue stream well into the future and we are positioned to grow the revenues of the company by doing more with existing clients and also adding to our client base,” said Peter Kalan, president and chief executive officer of CSG Systems International, Inc. “Further, we’ve proven that we are prudent operators with the ability to drive bottom line results and improve our operating margins. I am optimistic about what the future holds for our clients, our employees and our shareholders.”


CSG Systems International, Inc.

April 30, 2013

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Financial Overview (unaudited)

(in thousands, except per share amounts and percentages):

 

     Quarter Ended March 31,  
     2013     2012     Percent
Change
 

Revenues

   $ 180,632      $ 185,007        (2 )% 

Non-GAAP Results:

      

Operating Income

   $ 27,648      $ 38,311        (28 )% 

Operating Income Margin

     15.3     20.7     —     

EPS

   $ 0.48      $ 0.60        (20 )% 

GAAP Results:

      

Operating Income

   $ 18,035      $ 28,952        (38 )% 

Operating Income Margin

     10.0     15.6     —     

EPS

   $ 0.46      $ 0.36        28

For additional information and reconciliations regarding CSG’s use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG’s website at www.csgi.com.

Results of Operations

Revenues: Total revenues for the first quarter of 2013 were $180.6 million, a 2% decrease when compared to revenues of $185.0 million for the first quarter of 2012, and a 9% decrease when compared to $198.0 million for the fourth quarter of 2012. Revenues for the first quarter of 2013 were negatively impacted by lower software sales during the quarter and the pricing adjustments associated with the Comcast contract extention that became effective March 1, 2013. Additionally, CSG had an exceptionally strong fourth quarter of software sales, which also contributed to the sequential quarterly decline in revenues.

Non-GAAP Results: Non-GAAP operating income for the first quarter of 2013 was $27.6 million, or 15.3% of total revenues, compared to $38.3 million, or 20.7%, for the first quarter of 2012. Non-GAAP operating income for the fourth quarter of 2012 was $33.0 million, or 16.7% of total revenues. The year-over-year decrease in operating income and operating income margin is primarily due to increased expenses resulting from continued investments made in the business, to include the impact of Ascade, acquired in July 2012. The sequential quarterly decrease can be attributed to the lower revenues generated during the first quarter of 2013 when compared to the fourth quarter of 2012, as discussed above.

Non-GAAP EPS for the first quarter of 2013 was $0.48, compared to non-GAAP EPS of $0.60 for the first quarter of 2012, and $0.67 for the fourth quarter of 2012. The decreases in non-GAAP EPS performance is reflective of the lower operating income margins discussed above.

GAAP Results: GAAP operating income for the first quarter of 2013 was $18.0 million, or 10.0% of total revenues, compared to $29.0 million, or 15.6%, for the same period in 2012.


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April 30, 2013

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GAAP EPS for the first quarter of 2013 was $0.46, compared to $0.36 for the first quarter of 2012. The improvement in GAAP EPS year-over-year can be primarily attributed to the income tax benefit recognized during the first quarter of 2013 related to 2012 R&D and related income tax credits, which provided a benefit to the first quarter of 2013 of $0.18 per diluted share.

Balance Sheet and Cash Flows

Balance Sheet: Certain key balance sheet items as of the indicated dates are as follows (in thousands):

 

     March  31,
2013
    December  31,
2012
    March  31,
2012
 

Cash, cash equivalents, and short-term investments

   $ 172,703      $ 169,321      $ 188,555   

Net billed trade accounts receivable

     179,093        191,943        170,909   

Total long-term debt:

      

Par value

   $ 296,250      $ 300,000      $ 333,000   

Unamortized OID

     (24,003     (25,302     (29,053
  

 

 

   

 

 

   

 

 

 

Net debt carrying amount

   $ 272,247      $ 274,698      $ 303,947   
  

 

 

   

 

 

   

 

 

 

Cash Flows: Certain key operating cash flow items for the indicated quarters then ended are as follows (in thousands):

 

     March  31,
2013
    December 31,
2012
    March  31,
2012
 

Cash Flows from Operating Activities:

      

Operations

   $ 41,316      $ 34,921      $ 28,890   

Changes in operating assets and liabilities

     (18,776     (15,866     19,299   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

   $ 22,540      $ 19,055      $ 48,189   
  

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

      

Purchases of property and equipment

   $ (4,492   $ (12,733   $ (2,318

Cash Flows from Financing Activities:

      

Repurchase of common stock under stock repurchase program

     (6,511   $ —          (5,189

Payments on long-term debt

     (3,750     (18,000     (7,000

2013 Financial Guidance

A summary of CSG’s financial guidance for the full year 2013 is as follows:

 

Revenues

   $740 - $760 million

Non-GAAP EPS

   $2.05 - $2.15

GAAP EPS from continuing operations

   $1.31 - $1.41

Adjusted EBITDA

   $153 - $158 million


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April 30, 2013

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For additional information and reconciliations regarding CSG’s use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG’s website at www.csgi.com.

Conference Call

CSG will host a one-hour conference call on April 30, 2013, at 5:00 p.m. ET, to discuss CSG’s first quarter results. The call will be carried live and archived on the Internet. A link to the conference call is available at www.csgi.com. In addition, to reach the conference by phone, dial (877) 941-8609 and ask the operator for the CSG International conference call and Liz Bauer, chairperson.

Additional Information

For information about CSG, please visit CSG’s web site at www.csgi.com. Additional information can be found in the Investor Relations section of the web site.

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 over forty percent of its revenues from its three largest clients;

 

   

Continued market acceptance of CSG’s products and services;

 

   

CSG’s ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner;

 

   

CSG’s ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations;

 

   

CSG’s dependency on the global telecommunications industry, and in particular, the North American telecommunications industry;

 

   

CSG’s ability to meet its financial expectations as a result of increased dependency on software sales, which are subject to greater volatility;

 

   

Increasing competition in CSG’s market from companies of greater size and with broader presence in the communications sector;

 

   

CSG’s ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals;

 

   

CSG’s ability to protect its intellectual property rights;

 

   

CSG’s ability to maintain a reliable, secure computing environment;

 

   

CSG’s ability to conduct business in the international marketplace;


CSG Systems International, Inc.

April 30, 2013

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CSG’s 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 CSG’s 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


CSG Systems International, Inc.

April 30, 2013

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CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands, except per share amounts)

 

     March  31,
2013
    December  31,
2012
 
ASSETS   

Current assets:

    

Cash and cash equivalents

   $ 146,158      $ 136,473   

Short-term investments

     26,545        32,848   
  

 

 

   

 

 

 

Total cash, cash equivalents, and short-term investments

     172,703        169,321   

Trade accounts receivable:

    

Billed, net of allowance of $3,618 and $3,147

     179,093        191,943   

Unbilled and other

     34,766        33,859   

Deferred income taxes

     15,828        22,244   

Income taxes receivable

     16,779        6,469   

Other current assets

     17,855        17,099   
  

 

 

   

 

 

 

Total current assets

     437,024        440,935   

Non-current assets:

    

Property and equipment, net of depreciation of $125,277 and $120,643

     37,211        39,429   

Software, net of amortization of $71,334 and $68,513

     36,969        36,729   

Goodwill

     226,309        233,365   

Client contracts, net of amortization of $82,743 and $184,763

     68,750        76,388   

Deferred income taxes

     2,586        2,596   

Income taxes receivable

     409        1,292   

Other assets

     15,751        16,207   
  

 

 

   

 

 

 

Total non-current assets

     387,985        406,006   
  

 

 

   

 

 

 

Total assets

   $ 825,009      $ 846,941   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Current maturities of long-term debt

   $ 15,000      $ 15,000   

Client deposits

     32,827        33,807   

Trade accounts payable

     32,764        30,473   

Accrued employee compensation

     35,093        61,083   

Income taxes payable

     2,436        2,116   

Deferred revenue

     58,520        47,691   

Other current liabilities

     17,204        21,562   
  

 

 

   

 

 

 

Total current liabilities

     193,844        211,732   
  

 

 

   

 

 

 

Non-current liabilities:

    

Long-term debt, net of unamortized original issue discount of $24,003 and $25,302

     257,247        259,698   

Deferred revenue

     8,276        6,504   

Income taxes payable

     1,168        1,168   

Deferred income taxes

     21,172        21,674   

Other non-current liabilities

     16,645        19,526   
  

 

 

   

 

 

 

Total non-current liabilities

     304,508        308,570   
  

 

 

   

 

 

 

Total liabilities

     498,352        520,302   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding

     —          —     

Common stock, par value $.01 per share; 100,000 shares authorized; 33,960 shares and 33,734 shares outstanding

     658        653   

Additional paid-in capital

     461,400        461,497   

Treasury stock, at cost, 31,858 and 31,530 shares

     (734,754     (728,243

Accumulated other comprehensive income (loss):

    

Unrealized gain on short-term investments, net of tax

     2        3   

Unrecognized pension plan losses and prior service costs, net of tax

     (1,355     (1,761

Unrealized loss on change in fair value of interest rate swaps, net of tax

     (552     (658

Cumulative foreign currency translation adjustments

     (6,514     2,274   

Accumulated earnings

     607,772        592,874   
  

 

 

   

 

 

 

Total stockholders’ equity

     326,657        326,639   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 825,009      $ 846,941   
  

 

 

   

 

 

 


CSG Systems International, Inc.

April 30, 2013

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CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

 

     Quarter Ended  
     March  31,
2013
    March  31,
2012
 

Revenues:

    

Processing and related services

   $ 134,634      $ 136,314   

Software, maintenance and services

     45,998        48,693   
  

 

 

   

 

 

 

Total revenues

     180,632        185,007   
  

 

 

   

 

 

 

Cost of revenues (exclusive of depreciation, shown separately below):

    

Processing and related services

     61,577        61,960   

Software, maintenance and services

     31,777        28,009   
  

 

 

   

 

 

 

Total cost of revenues

     93,354        89,969   

Other operating expenses:

    

Research and development

     28,545        27,922   

Selling, general and administrative

     34,797        31,625   

Depreciation

     5,000        5,837   

Restructuring charges

     901        702   
  

 

 

   

 

 

 

Total operating expenses

     162,597        156,055   
  

 

 

   

 

 

 

Operating income

     18,035        28,952   
  

 

 

   

 

 

 

Other income (expense):

    

Interest expense

     (2,929     (4,152

Amortization of original issue discount

     (1,299     (1,203

Interest and investment income, net

     155        220   

Other, net

     (418     (205
  

 

 

   

 

 

 

Total other

     (4,491     (5,340
  

 

 

   

 

 

 

Income before income taxes

     13,544        23,612   

Income tax benefit (provision)

     1,354        (11,806
  

 

 

   

 

 

 

Net income

   $ 14,898      $ 11,806   
  

 

 

   

 

 

 

Weighted-average shares outstanding – Basic:

    

Common stock

     32,133        32,392   

Participating restricted stock

     —          66   
  

 

 

   

 

 

 

Total

     32,133        32,458   
  

 

 

   

 

 

 

Weighted-average shares outstanding – Diluted:

    

Common stock

     32,527        32,561   

Participating restricted stock

     —          66   
  

 

 

   

 

 

 

Total

     32,527        32,627   
  

 

 

   

 

 

 

Earnings per common share:

    

Basic

   $ 0.46      $ 0.36   

Diluted

     0.46        0.36   


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April 30, 2013

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CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

 

     Quarter Ended  
     March  31,
2013
    March  31,
2012
 

Cash flows from operating activities:

    

Net income

   $ 14,898      $ 11,806   

Adjustments to reconcile net income to net cash provided by operating activities -

    

Depreciation

     5,000        5,837   

Amortization

     9,736        10,302   

Amortization of original issue discount

     1,299        1,203   

(Gain) loss on short-term investments and other

     863        (8

Deferred income taxes

     6,447        (3,111

Excess tax benefit of stock-based compensation awards

     (537     (286

Stock-based employee compensation

     3,610        3,147   
  

 

 

   

 

 

 

Subtotal

     41,316        28,890   

Changes in operating assets and liabilities:

    

Trade accounts and other receivables, net

     10,229        13,252   

Other current and non-current assets

     (808     (1,152

Income taxes payable/receivable

     (8,641     14,614   

Trade accounts payable and accrued liabilities

     (29,450     (14,045

Deferred revenue

     9,894        6,630   
  

 

 

   

 

 

 

Net cash provided by operating activities

     22,540        48,189   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (4,492     (2,318

Purchases of short-term investments

     (23,178     (10,142

Proceeds from sale/maturity of short-term investments

     29,500        12,100   

Acquisition of and investments in client contracts

     (407     (1,693
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     1,423        (2,053
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     610        556   

Repurchase of common stock

     (11,343     (8,078

Payments on acquired equipment financing

     —          (417

Payments on long-term debt

     (3,750     (7,000

Excess tax benefit of stock-based compensation awards

     537        286   
  

 

 

   

 

 

 

Net cash used in financing activities

     (13,946     (14,653
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash

     (332     192   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     9,685        31,675   

Cash and cash equivalents, beginning of period

     136,473        146,733   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 146,158      $ 178,408   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Net cash paid during the period for -

    
    

Interest

   $ 3,378      $ 4,473   

Income taxes

     611        242   


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April 30, 2013

Page 9

 

EXHIBIT 1

CSG SYSTEMS INTERNATIONAL, INC.

SUPPLEMENTAL REVENUE ANALYSIS

Revenues by Geography

 

     Quarter Ended
March  31, 2013
    Quarter Ended
December  31, 2012
    Quarter Ended
March  31, 2012
 

Americas

     85     83     86

Europe, Middle East and Africa

     11     11     10

Asia Pacific

     4     6     4
  

 

 

   

 

 

   

 

 

 

Total Revenues

     100     100     100
  

 

 

   

 

 

   

 

 

 

Revenues by Significant Customers: 10% or more of Revenues

 

     Quarter Ended
March  31, 2013
    Quarter Ended
December  31, 2012
    Quarter Ended
March  31, 2012
 

Comcast

     20     19     20

DISH

     15     13     13

Time Warner

     11     11     <10

ACP Customer Accounts (in thousands, at end of period)

 

     March  31,
2013
     December  31,
2012
     March  31,
2012
 

Cable/Satellite Customer Accounts

     49,151         48,870         49,228   


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April 30, 2013

Page 10

 

EXHIBIT 2

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 CSG’s 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 CSG’s 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 CSG’s underlying operational results, trends, and cash generating capabilities;

 

   

Consistency and comparability with CSG’s 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 CSG’s operations and that are required by GAAP to be included in financial statements;

 

   

Certain adjustments to CSG’s non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSG’s financial statements in future periods; and

 

   

Certain charges excluded from CSG’s non-GAAP financial measures are cash expenses, and therefore do impact CSG’s cash position.


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April 30, 2013

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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 CSG’s 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 CSG’s 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 CSG’s business, to include such things as involuntary employee terminations, and facility consolidations and abandonments. These charges are not considered reflective of CSG’s recurring core business operating results. The exclusion of these items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s 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 CSG’s 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 CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.

 

   

Stock-based compensation results from CSG’s 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 CSG’s 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 CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSG’s results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s business.


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April 30, 2013

Page 12

 

   

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 CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to acquisitions included in CSG’s subsequent results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s 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 CSG’s convertible debt securities for cash flow, liquidity, and debt service purposes.

 

   

Unusual items within CSG’s 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 CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s 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 CSG’s 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 CSG’s 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.


CSG Systems International, Inc.

April 30, 2013

Page 13

 

Non-GAAP Financial Measures

Non-GAAP Operating Income:

The reconciliations of GAAP operating income to non-GAAP operating income for the indicated periods are as follows (in thousands, except percentages):

 

     Quarter Ended
March 31, 2013
    Quarter Ended
March 31, 2012
 
     Amounts      % of
Revenues
    Amounts      % of
Revenues
 

GAAP operating income

   $ 18,035         10.0   $ 28,952         15.6

Restructuring charges

     901         0.5     702         0.4

Stock-based compensation

     3,610         2.0     3,147         1.7

Amortization of acquired intangible assets

     5,102         2.8     5,510         3.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Non-GAAP operating income

   $ 27,648         15.3   $ 38,311         20.7
  

 

 

    

 

 

   

 

 

    

 

 

 

Non-GAAP EPS:

The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts):

 

     Quarter Ended
March 31, 2013
     Quarter Ended
March 31, 2012
 
     Pretax
Amount (1)
     EPS (3)      Pretax
Amount (1)
     EPS (3)  

GAAP income before income taxes

   $ 13,544       $ 0.46       $ 23,612       $ 0.36   

Restructuring charges

     901            702      

Stock-based compensation

     3,610            3,147      

Amortization of acquired intangible assets

     5,102            5,510      

Amortization of OID

     1,299            1,203      
  

 

 

       

 

 

    

Non-GAAP income before income taxes (2)

   $ 24,456       $ 0.48       $ 34,174       $ 0.60   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) These items (on a pretax basis) are calculated in accordance with GAAP, and are reflected as part of the results of operations in the accompanying Unaudited Condensed Consolidated Statements of Income.
(2) Non-GAAP EPS is calculated by taking the non-GAAP income before income taxes and deducting from this amount non-GAAP income taxes calculated by using the non-GAAP effective income tax rate for the period, and then dividing the result of this calculation by the outstanding diluted shares for the period.
(3) For the first quarter of 2013, the GAAP effective income rate was a negative ten percent, the non-GAAP effective income tax rate was approximately 36%, and the outstanding diluted shares were 32.5 million. The negative ten percent GAAP effective income tax rate is a result of the recognition of the 2012 R&D tax credits of approximately $6 million, or approximately $0.18 per diluted share, in the first quarter of 2013. These credits were recognized for GAAP purposes in the first quarter of 2013 since the credit legislation was passed by Congress in January 2013. The effective income tax rate for non-GAAP purposes of approximately 36% for the first quarter of 2013 excludes the impact of these tax credits, as they were reflected in the 2012 non-GAAP effective income tax rate. For the first quarter of 2012, the GAAP effective income tax rate was 50%, the non-GAAP effective income tax rate was approximately 43%, and the outstanding diluted shares were 32.6 million.


CSG Systems International, Inc.

April 30, 2013

Page 14

 

Non-GAAP Adjusted EBITDA:

CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to net income and cash flows from operating activities are provided below for the indicated periods (in thousands):

 

     Quarter Ended
March 31,
 
     2013     2012  

GAAP operating income

   $ 18,035      $ 28,952   

Restructuring charges

     901        702   

Depreciation

     5,000        5,837   

Amortization of acquired intangible assets (4)

     5,102        5,510   

Amortization of other intangible assets (4)

     4,016        4,074   

Stock-based compensation

     3,610        3,147   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 36,664      $ 48,222   
  

 

 

   

 

 

 

Adjusted EBITDA as a percentage of revenues

     20     26
  

 

 

   

 

 

 

 

     Quarter Ended
March 31,
 
     2013     2012  

Net income

   $ 14,898      $ 11,806   

Interest expense (5)

     2,929        4,152   

Amortization of OID

     1,299        1,203   

Interest and investment income and other, net

     263        (15

Income tax (benefit) provision

     (1,354     11,806   

Depreciation

     5,000        5,837   

Amortization of acquired intangible assets (4)

     5,102        5,510   

Amortization of other intangible assets (4)

     4,016        4,074   

Stock-based compensation

     3,610        3,147   

Restructuring charges

     901        702   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 36,664      $ 48,222   
  

 

 

   

 

 

 

 

     Quarter Ended
March 31,
 
     2013     2012  

Cash flows from operating activities

   $ 22,540      $ 48,189   

Income tax (benefit) provision

     (1,354     11,806   

Changes in operating assets and liabilities, and deferred

taxes

     12,329        (16,188

Restructuring charges

     901        702   

Interest expense (5)

     2,929        4,152   

Interest and investment income and other, net

     263        (15

Other

     (944     (424
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 36,664      $ 48,222   
  

 

 

   

 

 

 


CSG Systems International, Inc.

April 30, 2013

Page 15

 

(4) Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands):

 

     Quarter Ended
March 31,
 
     2013      2012  

Amortization of acquired intangible assets

   $ 5,102       $ 5,510   

Amortization of other intangible assets

     4,016         4,074   

Amortization of deferred financing costs

     618         718   
  

 

 

    

 

 

 

Total amortization

   $ 9,736       $ 10,302   
  

 

 

    

 

 

 

 

(5) Interest expense includes amortization of deferred financing costs as provided in Note 4 above.

Free Cash Flow:

CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities are provided below for the indicated periods (in thousands):

 

     Quarter Ended
March 31,
 
     2013     2012  

Cash flows from operating activities

   $ 22,540      $ 48,189   

Purchases of property and equipment

     (4,492     (2,318
  

 

 

   

 

 

 

Non-GAAP free cash flow

   $ 18,048      $ 45,871   
  

 

 

   

 

 

 

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 CSG’s 2013 full year financial guidance, is as follows:

 

     2013
Guidance
 

GAAP operating income margin

     11.0

Restructuring charges (6)

     0.5

Stock-based compensation (7)

     2.0

Amortization of acquired intangible assets (8)

     2.5
  

 

 

 

Non-GAAP operating income margin (“approximately 16%”)

     16.0
  

 

 

 

 

(6) This represents the pretax impact of restructuring charges of an estimated $4 million on CSG’s operating income margin as a percentage of the midpoint of 2013 revenue guidance.
(7) This represents the pretax impact of stock-based compensation expense of an estimated $16 million on CSG’s operating income margin as a percentage of the midpoint of 2013 revenue guidance.
(8) This represents the pretax impact of amortization of acquired intangible assets expense of an estimated $19 million on CSG’s operating income margin as a percentage of the midpoint of 2013 revenue guidance.


CSG Systems International, Inc.

April 30, 2013

Page 16

 

Non-GAAP EPS:

The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2013 full year financial guidance is as follows:

 

     2013 Guidance Range  
     Low Range      High Range  
     Pretax
Amount (9)
     EPS (11)      Pretax
Amount (9)
     EPS (11)  

GAAP income before income taxes

   $ 60,000       $ 1.31       $ 65,000       $ 1.41   

Restructuring charges

     4,000            4,000      

Stock-based compensation

     16,000            16,000      

Amortization of acquired intangible assets

     19,000            19,000      

Amortization of OID

     5,000            5,000      
  

 

 

       

 

 

    

Non-GAAP income before income taxes (10)

   $ 104,000       $ 2.05       $ 109,000       $ 2.15   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(9) These items (on a pretax basis) are calculated in accordance with GAAP, and will be reflected as part of the results of operations in CSG’s Unaudited Condensed Consolidated Statements of Income.
(10) Non-GAAP EPS is calculated by taking the non-GAAP income before income taxes and deducting from this amount non-GAAP income taxes calculated by using the non-GAAP effective income tax rate for the period, and then dividing the result of this calculation by the outstanding diluted shares for the period.
(11) For 2013, the GAAP effective income rate is expected to be 29% percent, the non-GAAP effective income tax rate is expected to be approximately 36%, and the outstanding diluted shares are expected to be 32.6 million. The expected 29% percent GAAP effective income tax rate reflects the recognition of the 2012 R&D tax credits of approximately $6 million, or approximately $0.18 per diluted share. These credits will be recognized for GAAP purposes in 2013 since the credit legislation was passed by Congress in January 2013. The expected effective income tax rate for non-GAAP purposes of approximately 36% for 2013 excludes the impact of these tax credits, as they were reflected in the 2012 non-GAAP effective income tax rate.

Non-GAAP Adjusted EBITDA:

CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to net income and cash flows from operations are provided below for CSG’s 2013 full year financial guidance at the mid-point (in thousands):

 

     2013  

GAAP operating income

   $ 80,000   

Restructuring charges

     4,000   

Depreciation

     22,000   

Amortization of acquired intangible assets

     19,000   

Amortization of other intangible assets

     14,000   

Stock-based compensation

     16,000   
  

 

 

 

Adjusted EBITDA

   $ 155,000   
  

 

 

 

Adjusted EBITDA as a percentage of revenues

     21
  

 

 

 


CSG Systems International, Inc.

April 30, 2013

Page 17

 

     2013  

Net income

   $ 44,000   

Interest expense

     13,000   

Amortization of OID

     5,000   

Income tax provision

     18,000   

Depreciation

     22,000   

Amortization of acquired of intangible assets

     19,000   

Amortization of other intangible assets

     14,000   

Stock-based compensation

     16,000   

Restructuring charges

     4,000   
  

 

 

 

Adjusted EBITDA

   $ 155,000   
  

 

 

 

 

     2013  

Cash flows from operating activities (midpoint of guidance)

   $ 115,000   

Income tax provision

     18,000   

Changes in operating assets and liabilities and deferred taxes

     5,000   

Interest expense

     13,000   

Restructuring charges

     4,000   
  

 

 

 

Adjusted EBITDA

   $ 155,000   
  

 

 

 

Free Cash Flow:

CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s 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