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CSG Systems International, Inc. Reports Fourth Quarter 2007 Results
ENGLEWOOD, Colo.-(Business Wire)-January 29, 2008 - CSG Systems International, Inc. (Nasdaq: CSGS), a leading provider of customer care and billing solutions, today reported results for the quarter ended December 31, 2007.
Fourth Quarter 2007 Highlights:
— Results from continuing operations were as follows: total revenues were $113.5 million; operating income was $20.7 million; and income from continuing operations was $13.6 million, or $0.40 per diluted share.
— Operating income was reduced by approximately $1.3 million, and income from continuing operations was reduced by approximately $0.01 per diluted share, when compared to CSG's guidance expectations, as a result of the benefits provided to CSG's former CEO upon his retirement in December. Absent this impact, earnings per diluted share would have been at the mid-point of the range of CSG's financial guidance for the quarter.
— Cash flows from operations for the quarter were approximately $20 million, which came in below CSG's expectations of $31- $32 million for the quarter, primarily due to normal changes in certain operating assets and liabilities at quarter end.
— During the fourth quarter, CSG completed its $350 million stock repurchase plan announced in August 2006 by repurchasing 2.8 million shares of its common stock for $55.0 million (weighted-average price of $19.54 per share).
— On December 29, 2007, Peter Kalan, CSG's executive vice president of business and corporate development, replaced Ed Nafus as chief executive officer and president of the company, due to Mr. Nafus' retirement.
"Our fourth quarter financial results cap off another solid year for CSG, in terms of both financial and operating performance," said Peter Kalan, chief executive officer and president of CSG Systems International, Inc. "As we enter 2008, we will remain steadfast in our focus on delivering innovative solutions that solve our clients' business challenges, and on facilitating our clients' deployment of new products and services, so they can make customer service a competitive differentiator in today's robust communications market."
Summary GAAP Results of Operations Information (unaudited)
(in thousands, except per share amounts and percentages): -0- *T Quarter Ended December 31, Year Ended December 31, ————————————— ————————————- Percent Percent 2007 2006 Change 2007 2006 Change ———— ———— ———— ———— ———— ———- Continuing operations: Total revenues $113,452 $96,643 17% $419,261 $383,106 9% Operating income 20,654 19,948 4% 83,837 86,471 (3)% Income from continuing operations 13,564 14,126 (4)% 60,163 62,561 (4)% Discontinued operations, net of tax 339 969 (65)% 608 (2,791) 122% Net income 13,903 15,095 (8)% 60,771 59,770 2% Diluted earnings per share: Income from continuing operations $0.40 $0.30 33% $1.50 $1.33 13% Discontinued operations, net of tax 0.01 0.02 (50)% 0.02 (0.06) 133% ———— ———— ———— ———— ———— ———- Net income $0.41 $0.32 28% $1.52 $1.27 20% ======== ======== ======== ======== ======== ======= *T
Fourth Quarter 2007 Results From Continuing Operations
Revenues. Total revenues for the fourth quarter of 2007 exceeded CSG's previous guidance expectations of $111 million to $113 million, coming in at $113.5 million, which represents an increase of 17 percent when compared to $96.6 million for the same period in 2006, and an increase of five percent when compared to $107.6 million for the third quarter of 2007.
— The increase in year-over-year revenues relates primarily to the impact of the ComTec and Prairie businesses, which were acquired by CSG in the third quarter of 2007, with the remaining portion of the increase related to organic growth factors.
— The increase in revenues between sequential quarters relates primarily to strong marketing services revenues during the fourth quarter of 2007, and to a lesser degree, the fourth quarter of 2007 having the full impact of the acquired ComTec and Prairie businesses.
Results of Operations. Income from continuing operations presented in accordance with generally accepted accounting principles ("GAAP") for the fourth quarter of 2007 was $13.6 million ($0.40 per diluted share), compared to $14.1 million ($0.30 per diluted share) for the same period last year, and $15.2 million ($0.39 per diluted share) for the third quarter of 2007.
— Operating income was reduced by approximately $1.3 million, and income from continuing operations was reduced by approximately $0.01 per diluted share, when compared to CSG's guidance expectations, as a result of the benefits provided to CSG's former CEO upon his retirement in December. Absent this impact, earnings per diluted share would have been at the mid-point of the range of CSG's financial guidance of $0.40 - $0.42 per diluted share for the quarter.
Supplemental Data
The following information is provided to assist readers in further evaluating CSG's performance (in thousands, except per share amounts): -0- *T Quarter Ended Quarter Ended December 31, 2007 December 31, 2006 ——————————- ——————————- Per Per Diluted Diluted Share Share Amount (1) Impact (2) Amount (1) Impact (2) ————— ————— ————— ————— Certain non-cash expenses: Depreciation $3,572 $0.07 $2,787 $0.04 Amortization of intangible assets 4,709 0.09 4,267 0.05 Stock-based employee compensation 2,976 0.06 3,100 0.04 ————— ————— ————— ————— Total $11,257 $0.22 $10,154 $0.13 ========== ========== ========== ========== Year Ended Year Ended December 31, 2007 December 31, 2006 ——————————- ——————————- Per Per Diluted Diluted Share Share Amount (1) Impact (2) Amount (1) Impact (2) ————— ————— ————— ————— Certain non-cash expenses: Depreciation $12,900 $0.21 $10,438 $0.14 Amortization of intangible assets 17,789 0.29 15,913 0.21 Stock-based employee compensation 11,102 0.18 12,214 0.16 ————— ————— ————— ————— Total $41,791 $0.68 $38,565 $0.51 ========== ========== ========== ========== *T
(1) These items (on a pretax basis) are calculated in accordance with GAAP, and are reflected as part of continuing operations in the accompanying Unaudited Condensed Consolidated Statements of Income.
(2) This represents the after tax impact to income from continuing operations on a per diluted share basis using CSG's effective income tax rates from continuing operations of approximately 36% for the quarter and year ended December 31, 2007, and 42% and 38%, respectively, for the quarter and year ended December 31, 2006.
Total customer accounts processed on CSG's systems as of December 31, 2007, were 45.1 million, consistent with the number of customer accounts processed as of September 30, 2007.
Financial Condition and Cash Flows
Certain key balance sheet items as of the end of the indicated periods are as follows (in thousands): -0- *T December 31, September 30, December 31, 2007 2007 2006 ——————— ——————- —————— Cash, cash equivalents, and short-term investments (3) $132,832 $177,328 $415,490 Net trade accounts receivable 114,132 109,952 110,020 *T
Certain key operating cash flow items for the indicated quarters then ended are as follows (in thousands): -0- *T December 31, September 30, December 31, 2007 2007 2006 —————— ——————- —————— Cash Flows from Operating Activities: Operations $30,355 $28,404 $29,549 Changes in operating assets and liabilities (4) (10,807) 7,266 (680) —————— ——————- —————— Net cash provided by operating activities $19,548 $35,670 $28,869 ============ ============= ============ *T
(3) The sequential decrease of approximately $44 million between September 30, 2007 and December 31, 2007, is primarily due to $55.0 million of stock repurchases made during the quarter.
(4) The fourth quarter of 2007 changes in operating assets and liabilities was negatively impacted by normal changes in working capital items at quarterend.
Stock Repurchase Program
During the fourth quarter of 2007, CSG repurchased 2.8 million shares of its common stock for $55.0 million (a weighted-average price of $19.54 per share) under its stock repurchase program. As a result, CSG completed its $350 million stock repurchase plan announced in August 2006 during the fourth quarter. In total for this program, CSG purchased 14.8 million shares at weighted-average price of $23.72 per share.
Full Year 2008 Financial Guidance
A summary of CSG's financial guidance for continuing operations for the full year 2008 is as follows: -0- *T 2008 Full Year ———————————————- Revenues $450-$460 million Earnings per Diluted Share $1.63-$1.70 Cash flows from Operations $115-$120 million *T
We expect the total of our non-cash items related to depreciation, amortization, and stock-based compensation for 2008 to be approximately $45 million.
Conference Call
CSG will host a one-hour conference call on Tuesday, January 29, at 5 p.m. EDT, to discuss CSG's fourth quarter results. The call will be carried live and archived on the Internet. A link to the conference call is available at www.csgsystems.com.
Additional Information
For additional information about CSG, please visit CSG's web site at www.csgsystems.com. Additional information can be found in the Investor Relations section of the web site.
About CSG Systems International
Headquartered in Englewood, Colorado, CSG Systems International (Nasdaq: CSGS) is a leading provider of outsourced billing, customer care and print and mail solutions and services supporting the North American cable and direct broadcast satellite markets. CSG's solutions support some of the world's largest and most innovative providers of bundled multi-channel video, Internet, voice and IP-based services. CSG's unique combination of solutions, services and expertise ensure that cable and satellite operators can continue to rapidly launch new service offerings, improve operational efficiencies and deliver a high-quality customer experience in a competitive and ever-changing marketplace. CSG is a S&P Midcap 400 company. For more information, visit our website at www.csgsystems.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. These factors include, but are not limited to: 1) the concentration of approximately 70% of CSG's revenues with four clients; as a result, the loss of business from any one of those clients could potentially have a material adverse impact to CSG's financial results; 2) continued market acceptance of CSG's Advanced Convergent Platform (ACP) and related products and services; 3) CSG's ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner; 4) CSG's dependency on the North American communications industry; as a result, key market factors such as further industry consolidation, new market entrants that may not be clients of CSG, economic conditions, and/or the financial status of CSG clients may affect CSG's ability to maintain and expand market share; 5) increasing competition in our market from companies of greater size and with broader presence in the communications sector, thus exerting greater influence over client buying decisions; 6) CSG's ability to successfully integrate and manage acquired businesses, technology or assets to achieve the expected strategic, operating and financial goals established for such acquisitions; 7) CSG's continued ability to protect its intellectual property rights; and 8) CSG's dependency on a variety of computing environments and communications networks, thus subjecting CSG to the risks of extended interruptions, outages, unauthorized access and corruption of data. 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. -0- *T CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED (in thousands, except share and per share amounts) December 31, December 31, 2007 2006 ——————— —————— ASSETS —————————————————————- Current assets: Cash and cash equivalents $123,416 $240,687 Short-term investments 9,416 174,803 ——————— —————— Total cash, cash equivalents and short-term investments 132,832 415,490 Trade accounts receivable- Billed, net of allowance of $1,487 and $1,143 114,132 110,020 Unbilled and other 6,038 5,555 Deferred income taxes 10,657 8,927 Income taxes receivable 2,128 - Other current assets 6,399 5,636 ——————— —————— Total current assets 272,186 545,628 Property and equipment, net of depreciation of $69,565 and $66,656 32,656 23,680 Software, net of amortization of $34,445 and $32,989 8,649 7,725 Goodwill 60,745 14,228 Client contracts, net of amortization of $98,822 and $82,486 31,526 36,024 Deferred income taxes 9,453 19,617 Other assets 7,173 6,594 ——————— —————— Total assets $422,388 $653,496 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY —————————————————————- Current liabilities: Client deposits $26,657 $23,645 Trade accounts payable 18,429 15,509 Accrued employee compensation 21,042 20,962 Deferred revenue 17,480 17,586 Income taxes payable - 3,651 Other current liabilities 7,595 10,158 ——————— —————— Total current liabilities 91,203 91,511 ——————— —————— Non-current liabilities: Long-term debt 230,000 230,000 Deferred revenue 9,790 8,632 Income taxes payable 4,918 - Other non-current liabilities 3,953 5,619 ——————— —————— Total non-current liabilities 248,661 244,251 ——————— —————— Total liabilities 339,864 335,762 ——————— —————— Stockholders' equity: Preferred stock, par value $.01 per share; 10,000,000 shares authorized; zero shares issued and outstanding - - Common stock, par value $.01 per share; 100,000,000 shares authorized; 33,779,173 shares and 46,831,643 shares outstanding 622 616 Additional paid-in capital 350,272 340,564 Treasury stock, at cost, 27,956,808 shares and 14,776,238 shares (667,858) (360,259) Accumulated other comprehensive income (loss): Unrealized gain on short-term investments, net of tax 15 25 Unrecognized pension plan losses and prior service costs, net of tax (435) (852) Accumulated earnings 399,908 337,640 ——————— —————— Total stockholders' equity 82,524 317,734 ——————— —————— Total liabilities and stockholders' equity $422,388 $653,496 ============== ============ *T -0- *T CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED (in thousands, except per share amounts) Quarter Ended Year Ended ————————— —————————- December December December December 31, 31, 31, 31, 2007 2006 2007 2006 ————- ———— ————- ————- Revenues: Processing and related services$104,379 $87,356 $382,070 $351,764 Software, maintenance and services 9,073 9,287 37,191 31,342 ————- ———— ————- ————- Total revenues 113,452 96,643 419,261 383,106 ————- ———— ————- ————- Cost of revenues: Processing and related services 54,564 44,079 193,135 173,536 Software, maintenance and services 6,059 5,420 24,674 20,975 ————- ———— ————- ————- Total cost of revenues 60,623 49,499 217,809 194,511 ————- ———— ————- ————- Gross margin (exclusive of depreciation) 52,829 47,144 201,452 188,595 ————- ———— ————- ————- Operating expenses: Research and development 15,088 13,319 58,342 46,191 Selling, general and administrative 13,430 11,090 45,743 43,127 Depreciation 3,572 2,787 12,900 10,438 Restructuring charges 85 - 630 2,368 ————- ———— ————- ————- Total operating expenses 32,175 27,196 117,615 102,124 ————- ———— ————- ————- Operating income 20,654 19,948 83,837 86,471 ————- ———— ————- ————- Other income (expense): Interest expense (1,761) (1,815) (7,126) (7,465) Interest and investment income, net 2,212 5,991 16,529 21,984 Other, net 88 31 221 (21) ————- ———— ————- ————- Total other 539 4,207 9,624 14,498 ————- ———— ————- ————- Income from continuing operations before income taxes 21,193 24,155 93,461 100,969 Income tax provision (7,629) (10,029) (33,298) (38,408) ————- ———— ————- ————- Income from continuing operations 13,564 14,126 60,163 62,561 ————- ———— ————- ————- Discontinued operations: Income from discontinued operations, includes net pretax loss on disposal in 2006 of $6,000 547 - 547 (6,555) Income tax benefit (208) 969 61 3,764 ————- ———— ————- ————- Discontinued operations, net of tax 339 969 608 (2,791) ————- ———— ————- ————- Net income $13,903 $15,095 $60,771 $59,770 ========= ======== ========= ========= Basic earnings (loss) per common share: Income from continuing operations $0.40 $0.31 $1.51 $1.35 Discontinued operations, net of tax 0.01 0.02 0.02 (0.06) ————- ———— ————- ————- Net income $0.41 $0.33 $1.53 $1.29 ========= ======== ========= ========= Diluted earnings (loss) per common share: Income from continuing operations $0.40 $0.30 $1.50 $1.33 Discontinued operations, net of tax 0.01 0.02 0.02 (0.06) ————- ———— ————- ————- Net income $0.41 $0.32 $1.52 $1.27 ========= ======== ========= ========= Weighted-average shares outstanding: Basic 33,779 45,877 39,670 46,464 Diluted 34,086 46,723 40,021 47,102 *T -0- *T CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands) Year Ended —————————————- December 31, December 31, 2007 2006 ——————- —————— Cash flows from operating activities: Net income $60,771 $59,770 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation 12,900 10,438 Amortization 18,972 17,112 Restructuring charge for abandonment of facilities 308 401 Net pretax loss on disposition of discontinued operations - 6,000 Gain on short-term investments (3,305) (1,841) Deferred income taxes 14,319 15,685 Excess tax benefits from stock-based compensation awards (892) (3,511) Stock-based employee compensation 11,102 12,214 Changes in operating assets and liabilities: Trade accounts and other receivables, net 2,556 (2,295) Other current and non-current assets 1,317 (1,093) Income taxes payable/receivable 1,890 12,070 Trade accounts payable and accrued liabilities (5,611) (13,565) Deferred revenue 1,052 6,765 ——————- —————— Net cash provided by operating activities 115,379 118,150 ——————- —————— Cash flows from investing activities: Net payments from the disposition of discontinued operations - (6,436) Purchases of property and equipment (20,271) (12,651) Proceeds from sale of aircraft held for sale - 7,376 Purchases of short-term investments (209,436) (283,082) Proceeds from sale/maturity of short-term investments 379,008 156,200 Acquisition of businesses, net of cash acquired (65,934) (22,283) Acquisition of and investments in client contracts (7,436) (10,658) ——————- —————— Net cash provided by (used in) investing activities 75,931 (171,534) ——————- —————— Cash flows from financing activities: Proceeds from issuance of common stock 2,150 11,528 Repurchase of common stock (311,623) (66,600) Payments on acquired equipment financing - (481) Excess tax benefits from stock-based compensation awards 892 3,511 ——————- —————— Net cash used in financing activities (308,581) (52,042) ——————- —————— Net decrease in cash and cash equivalents (117,271) (105,426) Cash and cash equivalents, beginning of period 240,687 346,113 ——————- —————— Cash and cash equivalents, end of period $123,416 $240,687 ============= ============ Supplemental disclosures of cash flow information: Net cash paid during the period for - Interest $6,167 $6,165 Income taxes 16,971 7,438 *T
