[May 06, 2014] |
|
CSG Systems International Reports Results for First Quarter 2014
ENGLEWOOD, Colo. --(Business Wire)--
CSG Systems International, Inc. (Nasdaq: CSGS), a leading global
provider of interactive transaction-driven solutions and services, today
reported results for the quarter ended March 31, 2014.
Key Financial Highlights:
-
First quarter 2014 results:
-
Total revenues were $188.0 million.
-
Non-GAAP operating income was $29.9 million, or 15.9%
of total revenues and GAAP operating income was $20.9 million,
or 11.1% of total revenues.
-
Non-GAAP earnings per diluted share (EPS) was $0.52.
GAAP EPS was $0.28.
-
Cash flows from operations for the quarter were negative $(8.6)
million.
-
CSG paid its quarterly cash dividend of $0.15 per share of
common stock, or a total of approximately $5 million, to
shareholders on March 27, 2014.
"We had another solid quarter, generating strong revenues and earnings,
in particular in our processing business," said Peter Kalan, president
and chief executive officer of CSG International. "We continue to help
our clients navigate a rapidly-moving and changing landscape. Our focus
on helping them drive down their operational costs, introduce new
revenue-generating services and create loyal and committed customer
relationships continues to position us as a trusted and valued partner."
Financial Overview (unaudited)
(in thousands, except per share amounts and percentages):
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
|
2014
|
|
2013
|
|
Percent Change
|
|
Revenues
|
|
$
|
188,028
|
|
|
$
|
180,632
|
|
|
4
|
%
|
|
Non-GAAP Results:
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
29,905
|
|
|
$
|
27,648
|
|
|
8
|
%
|
|
Operating Income Margin
|
|
|
15.9
|
%
|
|
|
15.3
|
%
|
|
-
|
|
|
EPS
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
8
|
%
|
|
GAAP Results:
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
20,914
|
|
|
$
|
18,035
|
|
|
16
|
%
|
|
Operating Income Margin
|
|
|
11.1
|
%
|
|
|
10.0
|
%
|
|
-
|
|
|
EPS
|
|
$
|
0.28
|
|
|
$
|
0.46
|
|
|
(39
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2014 were $188.0 million, a 4% increase when compared
to revenues of $180.6 million for the first quarter of 2013, and a 3%
decrease when compared to the $194.5 million for the fourth quarter of
2013. The year-over-year increase in revenues is primarily due to a
strong first quarter of processing revenues, driven in large part by
special project work and continued growth in various ancillary products
and services. Sequential quarterly revenues decreased, as CSG typically
experiences seasonally stronger software and services revenues in the
fourth quarter.
Non-GAAP Results: Non-GAAP operating
income for the first quarter of 2014 was $29.9 million, or 15.9% of
total revenues, compared to $27.6 million, or 15.3%, for the first
quarter of 2013 with the year-over-year quarterly improvement mainly a
result of revenue growth. Non-GAAP operating income for the fourth
quarter of 2013 was $35.8 million, or 18.4% of total revenues, with the
sequential quarterly decrease mainly due to the lower total revenues for
the current quarter.
Non-GAAP EPS for the first quarter of 2014 was $0.52, compared to
non-GAAP EPS of $0.48 for the first quarter of 2013, and $0.63 for the
fourth quarter of 2013.
GAAP Results: GAAP operating income
for the first quarter of 2014 was $20.9 million, or 11.1% of
total revenues, compared to $18.0 million, or 10.0%, for the same period
in 2013.
GAAP EPS for the first quarter of 2014 was $0.28, compared to $0.46 for
the first quarter of 2013. GAAP EPS for the first quarter of 2013 was
positively impacted by $0.18 due to the income tax benefit in the
quarter related to the 2012 R&D income tax credits that were passed by
Congress and recognized after the end of 2012.
Balance Sheet and Cash Flows
Balance Sheet: Certain key balance
sheet items as of the indicated dates are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
|
March 31, 2013
|
|
Cash, cash equivalents, and short-term investments
|
|
$
|
183,012
|
|
|
$
|
210,837
|
|
|
$
|
172,703
|
|
|
Net billed trade accounts receivable (1)
|
|
|
195,736
|
|
|
|
178,511
|
|
|
|
179,093
|
|
|
Total long-term debt:
|
|
|
|
|
|
|
|
Par value
|
|
$
|
281,250
|
|
|
$
|
285,000
|
|
|
$
|
296,250
|
|
|
Unamortized OID
|
|
|
(18,547
|
)
|
|
|
(19,950
|
)
|
|
|
(24,003
|
)
|
|
Net debt carrying amount
|
|
$
|
262,703
|
|
|
$
|
265,050
|
|
|
$
|
272,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The increase in trade accounts receivable at March 31, 2014 is
primarily related to the timing around certain monthly customer
payments that were received after the quarter ended.
|
|
|
|
|
Cash Flows: Certain key operating
cash flow items for the indicated quarters then ended are as follows (in
thousands):
|
|
March 31, 2014
|
|
December 31, 2013
|
|
March 31, 2013
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
Operations
|
|
$
|
27,983
|
|
|
$
|
30,396
|
|
|
$
|
41,320
|
|
|
Changes in operating assets and liabilities (2)
|
|
|
(36,561
|
)
|
|
|
9,656
|
|
|
|
(18,776
|
)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(8,578
|
)
|
|
$
|
40,052
|
|
|
$
|
22,544
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
$
|
(4,499
|
)
|
|
$
|
(11,090
|
)
|
|
$
|
(4,492
|
)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
Dividend payments
|
|
$
|
(5,162
|
)
|
|
$
|
(4,824
|
)
|
|
$
|
-
|
|
|
Repurchase of common stock under stock repurchase program
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,511
|
)
|
|
Payments on long-term debt
|
|
|
(3,750
|
)
|
|
|
(3,750
|
)
|
|
|
(3,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Cash flows from operating activities for the quarter ended March 31,
2014 reflect the negative impact of the following timing items on
working capital for the quarter: (i) the increase in the accounts
receivable balance discussed above; and (ii) the payment of 2013
year-end accrued employee incentive compensation.
|
|
|
|
|
2014 Financial Guidance
CSG is maintaining its financial guidance for the full year 2014 as
follows:
Revenues
|
|
|
|
$745 - $770 million
|
Non-GAAP EPS
|
|
|
|
$2.05 - $2.17
|
GAAP EPS
|
|
|
|
$1.31 - $1.41
|
Non-GAAP Adjusted EBITDA
|
|
|
|
$152 - $158 million
|
|
|
|
|
|
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 May 6, 2014, at 5:00 p.m.
ET, to discuss CSG's first quarter results for 2014. 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 (800) 762-8779 and
ask the operator for the CSG International conference call and Liz
Bauer, chairperson.
Additional Information
For information about CSG, please visit CSG's website at www.csgi.com.
Additional information can be found in the Investor Relations section of
the 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, Orange, Reliance,
SingTel Optus, Telecom New Zealand, Telefonica, Time Warner Cable,
T-Mobile, Verizon, Vivo and Vodafone. With over 30 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'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.
|
|
|
|
|
|
CSG SYSTEMS INTERNATIONAL, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS-UNAUDITED (in thousands,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ 65,454
|
|
$ 82,686
|
|
Short-term investments
|
|
117,558
|
|
128,151
|
|
Total cash, cash equivalents, and short-term investments
|
|
183,012
|
|
210,837
|
|
Trade accounts receivable:
|
|
|
|
|
|
Billed, net of allowance of $3,104 and $2,359
|
|
195,736
|
|
178,511
|
|
Unbilled
|
|
39,541
|
|
38,365
|
|
Deferred income taxes
|
|
9,398
|
|
15,085
|
|
Income taxes receivable
|
|
4,625
|
|
3,815
|
|
Other current assets
|
|
29,461
|
|
28,762
|
|
Total current assets
|
|
461,773
|
|
475,375
|
|
Non-current assets:
|
|
|
|
|
|
Property and equipment, net of depreciation of $132,028 and $129,522
|
|
33,681
|
|
35,061
|
|
Software, net of amortization of $80,057 and $77,504
|
|
43,287
|
|
43,565
|
|
Goodwill
|
|
234,362
|
|
233,599
|
|
Client contracts, net of amortization of $80,339 and $75,382
|
|
52,064
|
|
55,191
|
|
Deferred income taxes
|
|
8,958
|
|
7,447
|
|
Income taxes receivable
|
|
1,846
|
|
1,930
|
|
Other assets
|
|
18,444
|
|
16,812
|
|
Total non-current assets
|
|
392,642
|
|
393,605
|
|
Total assets
|
|
$ 854,415
|
|
$ 868,980
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$ 16,875
|
|
$ 15,000
|
|
Client deposits
|
|
31,571
|
|
30,431
|
|
Trade accounts payable
|
|
31,994
|
|
33,376
|
|
Accrued employee compensation
|
|
36,802
|
|
58,434
|
|
Deferred revenue
|
|
50,373
|
|
47,131
|
|
Income taxes payable
|
|
2,515
|
|
2,814
|
|
Other current liabilities
|
|
24,345
|
|
19,620
|
|
Total current liabilities
|
|
194,475
|
|
206,806
|
|
Non-current liabilities:
|
|
|
|
|
|
Long-term debt, net of unamortized original issue discount of
$18,547 and $19,950
|
|
245,828
|
|
250,050
|
|
Deferred revenue
|
|
7,875
|
|
9,221
|
|
Income taxes payable
|
|
1,613
|
|
1,909
|
|
Deferred income taxes
|
|
18,894
|
|
20,274
|
|
Other non-current liabilities
|
|
14,451
|
|
14,616
|
|
Total non-current liabilities
|
|
288,661
|
|
296,070
|
|
Total liabilities
|
|
483,136
|
|
502,876
|
|
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;
34,085 shares and 33,745 shares outstanding
|
|
661
|
|
658
|
|
Additional paid-in capital
|
|
472,766
|
|
473,190
|
|
Treasury stock, at cost, 32,030 shares
|
|
(738,372)
|
|
(738,372)
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
Unrealized gain on short-term investments, net of tax
|
|
60
|
|
41
|
|
Unrealized loss on change in fair value of interest rate swaps, net
of tax
|
|
-
|
|
(98)
|
|
Cumulative foreign currency translation adjustments
|
|
2,578
|
|
1,674
|
|
Accumulated earnings
|
|
633,586
|
|
629,011
|
|
Total stockholders' equity
|
|
371,279
|
|
366,104
|
|
Total liabilities and stockholders' equity
|
|
$ 854,415
|
|
$ 868,980
|
|
|
|
|
|
|
|
CSG SYSTEMS INTERNATIONAL, INC. CONDENSED
CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED (in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31, 2014
|
|
March 31, 2013
|
|
Revenues:
|
|
|
|
|
|
Processing and related services
|
|
$ 142,358
|
|
$ 134,634
|
|
Software and services
|
|
24,856
|
|
25,364
|
|
Maintenance
|
|
20,814
|
|
20,634
|
|
Total revenues
|
|
188,028
|
|
180,632
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation, shown separately below):
|
|
|
|
|
|
Processing and related services
|
|
68,427
|
|
61,577
|
|
Software and services
|
|
25,320
|
|
21,439
|
|
Maintenance
|
|
8,357
|
|
10,338
|
|
Total cost of revenues
|
|
102,104
|
|
93,354
|
|
Other operating expenses:
|
|
|
|
|
|
Research and development
|
|
25,007
|
|
28,545
|
|
Selling, general and administrative
|
|
35,299
|
|
34,797
|
|
Depreciation
|
|
3,486
|
|
5,000
|
|
Restructuring charges
|
|
1,218
|
|
901
|
|
Total operating expenses
|
|
167,114
|
|
162,597
|
|
Operating income
|
|
20,914
|
|
18,035
|
|
Other income (expense):
|
|
|
|
|
|
Interest expense
|
|
(2,772)
|
|
(2,929)
|
|
Amortization of original issue discount
|
|
(1,404)
|
|
(1,299)
|
|
Interest and investment income, net
|
|
213
|
|
155
|
|
Other, net
|
|
51
|
|
(418)
|
|
Total other
|
|
(3,912)
|
|
(4,491)
|
|
Income before income taxes
|
|
17,002
|
|
13,544
|
|
Income tax (provision) benefit
|
|
(7,311)
|
|
1,354
|
|
Net income
|
|
$ 9,691
|
|
$ 14,898
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
Basic
|
|
32,319
|
|
32,133
|
|
Diluted
|
|
34,035
|
|
32,527
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
Basic
|
|
$ 0.30
|
|
$ 0.46
|
|
Diluted
|
|
0.28
|
|
0.46
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$ 0.15
|
|
$ -
|
|
|
|
CSG SYSTEMS INTERNATIONAL, INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in
thousands)
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31, 2014
|
|
March 31, 2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$
|
9,691
|
|
|
$
|
14,898
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities -
|
|
|
|
|
|
Depreciation
|
|
|
3,486
|
|
|
|
5,000
|
|
|
Amortization
|
|
|
8,590
|
|
|
|
9,736
|
|
|
Amortization of original issue discount
|
|
|
1,404
|
|
|
|
1,299
|
|
|
Loss on short-term investments and other
|
|
|
453
|
|
|
|
867
|
|
|
Gain on disposition of business operations
|
|
|
(222
|
)
|
|
|
-
|
|
|
Deferred income taxes
|
|
|
2,772
|
|
|
|
6,447
|
|
|
Excess tax benefit of stock-based compensation awards
|
|
|
(1,974
|
)
|
|
|
(537
|
)
|
|
Stock-based employee compensation
|
|
|
3,783
|
|
|
|
3,610
|
|
|
Subtotal
|
|
|
27,983
|
|
|
|
41,320
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Trade accounts receivable, net
|
|
|
(18,029
|
)
|
|
|
12,763
|
|
|
Other current and non-current assets
|
|
|
(3,448
|
)
|
|
|
(3,342
|
)
|
|
Income taxes payable/receivable
|
|
|
707
|
|
|
|
(8,641
|
)
|
|
Trade accounts payable and accrued liabilities
|
|
|
(17,464
|
)
|
|
|
(29,450
|
)
|
|
Deferred revenue
|
|
|
1,673
|
|
|
|
9,894
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(8,578
|
)
|
|
|
22,544
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,499
|
)
|
|
|
(4,492
|
)
|
|
Purchases of short-term investments
|
|
|
(40,531
|
)
|
|
|
(23,220
|
)
|
|
Proceeds from sale/maturity of short-term investments
|
|
|
50,855
|
|
|
|
29,500
|
|
|
Acquisition of and investments in client contracts
|
|
|
(1,509
|
)
|
|
|
(407
|
)
|
|
Proceeds from the disposition of business operations
|
|
|
630
|
|
|
|
-
|
|
|
Net cash provided by investing activities
|
|
|
4,946
|
|
|
|
1,381
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
340
|
|
|
|
610
|
|
|
Payment of cash dividends
|
|
|
(5,162
|
)
|
|
|
-
|
|
|
Repurchase of common stock
|
|
|
(6,518
|
)
|
|
|
(11,343
|
)
|
|
Payments on long-term debt
|
|
|
(3,750
|
)
|
|
|
(3,750
|
)
|
|
Excess tax benefit of stock-based compensation awards
|
|
|
1,974
|
|
|
|
537
|
|
|
Net cash used in financing activities
|
|
|
(13,116
|
)
|
|
|
(13,946
|
)
|
|
Effect of exchange rate fluctuations on cash
|
|
|
(484
|
)
|
|
|
(108
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(17,232
|
)
|
|
|
9,871
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
82,686
|
|
|
|
133,747
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
65,454
|
|
|
$
|
143,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Net cash paid during the period for -
|
|
|
|
|
|
Interest
|
|
$
|
3,322
|
|
|
$
|
3,378
|
|
|
Income taxes
|
|
|
3,755
|
|
|
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT 1
|
|
|
|
CSG SYSTEMS INTERNATIONAL, INC. SUPPLEMENTAL
REVENUE ANALYSIS
|
|
|
|
|
|
|
|
|
|
Revenues by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2014
|
|
Quarter Ended December 31, 2013
|
|
Quarter Ended March 31, 2013
|
|
Americas
|
|
86%
|
|
84%
|
|
85%
|
|
Europe, Middle East and Africa
|
|
10%
|
|
12%
|
|
11%
|
|
Asia Pacific
|
|
4%
|
|
4%
|
|
4%
|
|
Total Revenues
|
|
100%
|
|
100%
|
|
100%
|
|
|
|
|
|
|
|
|
|
Revenues by Significant Customers: 10% or
more of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2014
|
|
Quarter Ended December 31, 2013
|
|
Quarter Ended March 31, 2013
|
|
Comcast
|
|
21%
|
|
20%
|
|
20%
|
|
DISH
|
|
15%
|
|
15%
|
|
15%
|
|
Time Warner
|
|
11%
|
|
10%
|
|
11%
|
|
|
|
|
|
|
|
|
|
ACP Customer Accounts (in thousands, at
end of period)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
|
March 31, 2013
|
|
Cable/Satellite Customer Accounts
|
|
49,811
|
|
49,489
|
|
49,151
|
|
|
|
|
|
|
|
|
|
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;
-
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.
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, divestitures
of businesses, 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 financial 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 equity awards
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 date the equity award is
granted, 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.
-
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 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 non-GAAP
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, pay cash
dividends, 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
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, 2014
|
|
Quarter Ended March 31, 2013
|
|
|
|
Amounts
|
|
% of Revenues
|
|
Amounts
|
|
% of Revenues
|
|
GAAP operating income
|
|
$
|
20,914
|
|
11.1
|
%
|
|
$
|
18,035
|
|
10.0
|
%
|
|
Restructuring charges
|
|
|
1,218
|
|
0.7
|
%
|
|
|
901
|
|
0.5
|
%
|
|
Stock-based compensation
|
|
|
3,783
|
|
2.0
|
%
|
|
|
3,610
|
|
2.0
|
%
|
|
Amortization of acquired intangible assets
|
|
|
3,990
|
|
2.1
|
%
|
|
|
5,102
|
|
2.8
|
%
|
|
Non-GAAP operating income
|
|
$
|
29,905
|
|
15.9.
|
%
|
|
$
|
27,648
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2014
|
|
Quarter Ended March 31, 2013
|
|
|
|
Pretax Amount (1)
|
|
EPS (3)
|
|
Pretax Amount (1)
|
|
EPS (4)
|
|
GAAP income before income taxes
|
|
$
|
17,002
|
|
$
|
0.28
|
|
$
|
13,544
|
|
$
|
0.46
|
|
Restructuring charges
|
|
|
1,218
|
|
|
|
|
901
|
|
|
|
Stock-based compensation
|
|
|
3,783
|
|
|
|
|
3,610
|
|
|
|
Amortization of acquired intangible assets
|
|
|
3,990
|
|
|
|
|
5,102
|
|
|
|
Amortization of OID
|
|
|
1,404
|
|
|
|
|
1,299
|
|
|
|
Non-GAAP income before income taxes (2)
|
|
$
|
27,397
|
|
$
|
0.52
|
|
$
|
24,456
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2014, the GAAP effective income tax rate
was 43%, the non-GAAP effective income tax rate was approximately
36%, and the outstanding diluted shares were 34.0 million. The
difference between the GAAP and the non-GAAP effective income tax
rates relates to the timing of the 2014 R&D tax credit legislation.
The anticipated quarterly benefit of the credits is included for
non-GAAP purposes, but cannot be reflected for GAAP purposes until
the legislation is actually passed.
|
|
(4)
|
|
For the first quarter of 2013, the GAAP effective income tax 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.
|
|
|
|
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, except percentages):
|
|
|
|
Quarter Ended
March 31,
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
|
GAAP operating income
|
|
|
|
$
|
20,914
|
|
|
|
$
|
18,035
|
|
|
Restructuring charges
|
|
|
|
|
1,218
|
|
|
|
|
901
|
|
|
Depreciation
|
|
|
|
|
3,486
|
|
|
|
|
5,000
|
|
|
Amortization of acquired intangible assets (5)
|
|
|
|
|
3,990
|
|
|
|
|
5,102
|
|
|
Amortization of other intangible assets (5)
|
|
|
|
|
4,007
|
|
|
|
|
4,016
|
|
|
Stock-based compensation
|
|
|
|
|
3,783
|
|
|
|
|
3,610
|
|
|
Non-GAAP Adjusted EBITDA
|
|
|
|
$
|
37,398
|
|
|
|
$
|
36,664
|
|
|
Non-GAAP Adjusted EBITDA as a percentage of revenues
|
|
|
|
|
20
|
%
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
|
Net income
|
|
|
|
$
|
9,691
|
|
|
|
$
|
14,898
|
|
|
Interest expense (6)
|
|
|
|
|
2,772
|
|
|
|
|
2,929
|
|
|
Amortization of OID
|
|
|
|
|
1,404
|
|
|
|
|
1,299
|
|
|
Interest and investment income and other, net
|
|
|
|
|
(264
|
)
|
|
|
|
263
|
|
|
Income tax provision (benefit)
|
|
|
|
|
7,311
|
|
|
|
|
(1,354
|
)
|
|
Depreciation
|
|
|
|
|
3,486
|
|
|
|
|
5,000
|
|
|
Amortization of acquired intangible assets (5)
|
|
|
|
|
3,990
|
|
|
|
|
5,102
|
|
|
Amortization of other intangible assets (5)
|
|
|
|
|
4,007
|
|
|
|
|
4,016
|
|
|
Stock-based compensation
|
|
|
|
|
3,783
|
|
|
|
|
3,610
|
|
|
Restructuring charges
|
|
|
|
|
1,218
|
|
|
|
|
901
|
|
|
Non-GAAP Adjusted EBITDA
|
|
|
|
$
|
37,398
|
|
|
|
$
|
36,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
|
Cash flows from operating activities
|
|
|
|
$
|
(8,578
|
)
|
|
|
$
|
22,544
|
|
|
Income tax provision (benefit)
|
|
|
|
|
7,311
|
|
|
|
|
(1,354
|
)
|
|
Changes in operating assets and liabilities and deferred taxes
|
|
|
|
|
33,789
|
|
|
|
|
12,329
|
|
|
Interest expense (6)
|
|
|
|
|
2,772
|
|
|
|
|
2,929
|
|
|
Interest and investment income and other, net
|
|
|
|
|
(264
|
)
|
|
|
|
263
|
|
|
Restructuring charges
|
|
|
|
|
1,218
|
|
|
|
|
19
|
|
|
Other
|
|
|
|
|
1,150
|
|
|
|
|
(66
|
)
|
|
Non-GAAP Adjusted EBITDA
|
|
|
|
$
|
37,398
|
|
|
|
$
|
36,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) Amortization on the statement of cash flows is made up of the
following items for the indicated periods (in thousands):
|
|
|
|
Quarter Ended
March 31,
|
|
|
|
|
|
|
2014
|
|
|
|
2013
|
|
Amortization of acquired intangible assets
|
|
|
|
$
|
3,990
|
|
|
$
|
5,102
|
|
Amortization of other intangible assets
|
|
|
|
|
4,007
|
|
|
|
4,016
|
|
Amortization of deferred financing costs
|
|
|
|
|
593
|
|
|
|
618
|
|
Total amortization
|
|
|
|
$
|
8,590
|
|
|
$
|
9,736
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Interest expense includes amortization of deferred financing costs
as provided in Note 5 above.
Non-GAAP 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,
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
|
|
Cash flows from operating activities
|
|
|
|
$
|
(8,578
|
)
|
|
|
$
|
22,544
|
|
|
Purchases of property and equipment
|
|
|
|
|
(4,499
|
)
|
|
|
|
(4,492
|
)
|
|
Non-GAAP free cash flow
|
|
|
|
$
|
(13,077
|
)
|
|
|
$
|
18,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures - 2014 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 2014 full year financial guidance,
is as follows:
|
|
|
|
2014
Guidance
|
|
GAAP operating income margin
|
|
|
|
12.0
|
%
|
|
Restructuring charges (7)
|
|
|
|
0.5
|
%
|
|
Stock-based compensation (8)
|
|
|
|
2.0
|
%
|
|
Amortization of acquired intangible assets (9)
|
|
|
|
2.0
|
%
|
|
Non-GAAP operating income margin ("approximately 16.5%")
|
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
(7)
|
|
This represents the pretax impact of restructuring charges of an
estimated $1 million on CSG's operating income margin as a
percentage of the midpoint of 2014 revenue guidance.
|
|
(8)
|
|
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 2014 revenue guidance.
|
|
(9)
|
|
This represents the pretax impact of amortization of acquired
intangible assets expense of an estimated $16 million on CSG's
operating income margin as a percentage of the midpoint of 2014
revenue guidance.
|
|
|
|
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG's 2014
full year financial guidance is as follows (in thousands, except per
share amounts):
|
|
|
|
2014 Guidance Range
|
|
|
|
|
|
Low Range
|
|
|
|
High Range
|
|
|
|
|
|
Pretax Amount (10)
|
|
|
EPS (12)
|
|
|
|
Pretax Amount (10)
|
|
|
EPS (12)
|
|
GAAP income before income taxes
|
|
|
|
$
|
73,000
|
|
|
$
|
1.31
|
|
|
|
$
|
78,000
|
|
|
$
|
1.41
|
|
Restructuring charges
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
Amortization of acquired intangible assets
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
Amortization of OID
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
Non-GAAP income before income taxes (11)
|
|
|
|
$
|
112,000
|
|
|
$
|
2.05
|
|
|
|
$
|
117,000
|
|
|
$
|
2.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
|
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.
|
|
(11)
|
|
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.
|
|
(12)
|
|
For 2014, the estimated effective income tax rate for non-GAAP
purposes is expected to be approximately 36%, which assumes Congress
will approve the 2014 R&D income tax credit legislation prior to the
end of 2014. The weighted-average diluted shares outstanding are
expected to be 34.5 million.
|
|
|
|
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 2014 full year financial
guidance at the mid-point (in thousands, except percentages):
|
|
2014
|
|
GAAP operating income
|
|
$
|
91,000
|
|
|
Restructuring charges
|
|
|
1,000
|
|
|
Depreciation
|
|
|
16,000
|
|
|
Amortization of acquired intangible assets
|
|
|
16,000
|
|
|
Amortization of other intangible assets
|
|
|
15,000
|
|
|
Stock-based compensation
|
|
|
16,000
|
|
|
Non-GAAP Adjusted EBITDA
|
|
$
|
155,000
|
|
|
Non-GAAP Adjusted EBITDA as a percentage of revenues
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
2014
|
Net income
|
|
$
|
47,000
|
|
|
Interest expense
|
|
|
10,000
|
|
|
Interest and investment income and other, net
|
|
|
(1,000
|
)
|
|
Amortization of OID
|
|
|
6,000
|
|
|
Income tax provision
|
|
|
29,000
|
|
|
Depreciation
|
|
|
16,000
|
|
|
Amortization of acquired of intangible assets
|
|
|
16,000
|
|
|
Amortization of other intangible assets
|
|
|
15,000
|
|
|
Stock-based compensation
|
|
|
16,000
|
|
|
Restructuring charges
|
|
|
1,000
|
|
|
Non-GAAP Adjusted EBITDA
|
|
$
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
Cash flows from operating activities (midpoint of guidance)
|
|
$
|
115,000
|
|
|
Income tax provision
|
|
|
29,000
|
|
|
Interest and investment income and other, net
|
|
|
(1,000
|
)
|
|
Changes in operating assets and liabilities and deferred taxes
|
|
|
1,000
|
|
|
Interest expense
|
|
|
10,000
|
|
|
Restructuring charges
|
|
|
1,000
|
|
|
Non-GAAP Adjusted EBITDA
|
|
$
|
155,000
|
|
|
|
|
|
|
Non-GAAP 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):
|
|
|
|
|
|
2014
|
|
Cash flows from operating activities (midpoint of guidance)
|
|
$
|
115,000
|
|
|
Purchases of property and equipment
|
|
|
(30,000
|
)
|
|
Non-GAAP free cash flow
|
|
$
|
85,000
|
|
|
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