CSG Systems International Reports Results for Second Quarter 2013

  CSG Systems International Reports Results for Second Quarter 2013

Business Wire

ENGLEWOOD, Colo. -- August 6, 2013

CSG Systems International, Inc. (Nasdaq: CSGS), a leading global provider of
interactive transaction-driven solutions and services, today reported results
for the quarter ended June 30, 2013.

Key Financial Highlights:

  *Second quarter 2013 results:

       *Total revenues were $186.1 million.
       *Non-GAAP operating income was $30.4 million, or 16.3% of total
         revenues and GAAP operating income was $21.7 million, or 11.6% of
         total revenues.
       *Non-GAAP earnings per diluted share (EPS) was $0.57. GAAP EPS was
         $0.37.

  *Cash flows from operations for the quarter were $38.8 million.
  *CSG signed its first significant multi-year managed services agreement
    with a tier one communications provider in Asia Pacific.
  *During the quarter, CSG announced that it would be paying a quarterly cash
    dividend for the first time in its history. The initial quarterly cash
    dividend of $0.15 per share of common stock was paid to stockholders on
    July 25, 2013.
  *During the quarter, CSG repurchased approximately 166,000 shares of its
    common stock for $3.5 million (weighted-average price of $21.01 per share)
    under its stock repurchase program.

“This quarter we continued to make solid progress in extending our role in our
clients’ operations and helping various providers monetize content and
strengthen their relationships with their customers,” said Peter Kalan,
president and chief executive officer for CSG International. “I believe that
we have set this company up to deliver revenue growth and operating margin
improvements in subsequent years as we successfully execute on the numerous
opportunities that this dynamic and evolving market presents.”

Financial Overview (unaudited)

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

            Quarter Ended June 30,            Six Months Ended June 30,
                                    Percent                           Percent
                                  Change                          Change
              2013        2012                    2013        2012
Revenues      $           $           1%          $           $           (1)%
              186,107     183,851                 366,739     368,858
Non-GAAP
Results:
Operating     $           $           (8)%        $           $           (19)%
Income        30,362      33,135                  58,010      71,446
Operating
Income        16.3%       18.0%       -           15.8%       19.4%       -
Margin
EPS           $ 0.57      $ 0.56      2%          $ 1.05      $ 1.16      (9)%
GAAP
Results:
Operating     $           $           (9)%        $           $           (25)%
Income        21,681      23,745                  39,716      52,697
Operating
Income        11.6%       12.9%       -           10.8%       14.3%       -
Margin
EPS           $ 0.37      $ 0.37      0%          $ 0.83      $ 0.73      14%
                                                                                  

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 second quarter of 2013 were $186.1 million, a
1% increase when compared to revenues of $183.9 million for the second quarter
of 2012, and a 3% increase when compared to $180.6 million for the first
quarter of 2013. Revenues for the second quarter of 2013 reflect the first
full quarter impact of the pricing adjustments associated with both the
Comcast and Time Warner contract extensions. This was offset by increased
software and services revenues, which contributed to the increases in overall
total revenues.

Non-GAAP Results: Non-GAAP operating income for the second quarter of 2013 was
$30.4 million, or 16.3%  of total revenues, compared to $33.1 million, or
18.0%, for the second quarter of 2012. Non-GAAP operating income for the first
quarter of 2013 was $27.6 million, or 15.3% of total revenues. The
year-over-year decrease in operating income and operating income margin
reflects the impact of the Comcast and Time Warner pricing adjustments. The
sequential quarterly increase can be attributed to the increased software and
services revenues generated during the second quarter of 2013 when compared to
the first quarter of 2013, as mentioned above.

Non-GAAP EPS for the second quarter of 2013 was $0.57, relatively consistent
when compared to non-GAAP EPS of $0.56 for the second quarter of 2012.
Non-GAAP EPS for the first quarter of 2013 was $0.48, with the sequential
improvement a result of higher software and services revenues in the second
quarter of 2013.

GAAP Results: GAAP operating income for the second quarter of 2013 was $21.7
million, or 11.6%  of total revenues, compared to $23.7 million, or 12.9%, for
the same period in 2012.

GAAP EPS for the second quarter of 2013 was $0.37, consistent with that of the
second quarter of 2012.

Balance Sheet and Cash Flows

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

                                     June 30,      March 31,     December 31,
                                                          
                                     2013          2013          2012
Cash, cash equivalents, and          $ 189,294     $ 172,703     $ 169,321
short-term investments
Net billed trade accounts            172,521       179,093       191,943
receivable
Total long-term debt:
Par value                            $ 292,500     $ 296,250     $ 300,000
Unamortized OID                      (22,678)      (24,003)      (25,302)
Net debt carrying amount             $ 269,822     $ 272,247     $ 274,698

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

                                      June 30,      March 31,     June 30,
                                                           
                                      2013          2013          2012
Cash Flows from Operating
Activities:
Operations                            $ 31,308      $ 41,320      $ 29,898
Changes in operating assets and       7,494         (18,776)      6,681
liabilities
Net cash provided by operating        $ 38,802      $ 22,544      $ 36,579
activities
Cash Flows from Investing
Activities:
Purchases of property and             $ (6,633)     $ (4,492)     $ (11,232)
equipment
Cash Flows from Financing
Activities:
Repurchase of common stock under      (3,490)       (6,511)       $ (5,438)
stock repurchase program
Payments on long-term debt            (3,750)       (3,750)       (10,000)
                                                                             

During the second quarter of 2013, CSG initiated a quarterly cash dividend in
the amount of $0.15 per share of common stock. A total of approximately $5
million was paid to shareholders on July 25, 2013, and therefore will be
reported with CSG’s cash flow results for the third quarter of 2013. Going
forward, CSG expects to pay cash dividends each year in September, December,
March, and June, with the amount and timing subject to the Board of Directors’
approval.

2013 Financial Guidance

CSG is maintaining its financial guidance for the full year 2013 as follows:

Revenues           $740 - $760 million
Non-GAAP EPS          $2.05 - $2.15
GAAP EPS              $1.31 - $1.41
Adjusted EBITDA       $153 - $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 August 6, 2013, at 5:00 p.m. ET,
to discuss CSG's second 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 (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 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, 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’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)
                                                                  
                                                    June 30,      December 31,

                                                    2013          2012
ASSETS
Current assets:
Cash and cash equivalents                           $ 96,849      $ 133,747
Short-term investments                              92,445        35,574
Total cash, cash equivalents, and short-term        189,294       169,321
investments
Trade accounts receivable:
Billed, net of allowance of $3,750 and $3,147       172,521       191,943
Unbilled and other                                  43,367        33,859
Deferred income taxes                               16,116        22,244
Income taxes receivable                             12,441        6,469
Other current assets                                22,476        17,099
Total current assets                                456,215       440,935
Non-current assets:
Property and equipment, net of depreciation of      35,173        39,429
$129,990 and $120,643
Software, net of amortization of $73,941 and        39,036        36,729
$68,513
Goodwill                                            227,546       233,365
Client contracts, net of amortization of            67,467        76,388
$71,026 and $184,763
Deferred income taxes                               3,312         2,596
Income taxes receivable                             169           1,292
Other assets                                        15,508        16,207
Total non-current assets                            388,211       406,006
Total assets                                        $ 844,426     $ 846,941
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt                $ 15,000      $ 15,000
Client deposits                                     32,622        33,807
Trade accounts payable                              35,623        30,473
Accrued employee compensation                       44,536        61,083
Deferred revenue                                    56,195        47,691
Income taxes payable                                2,282         2,116
Other current liabilities                           22,428        21,562
Total current liabilities                           208,686       211,732
Non-current liabilities:
Long-term debt, net of unamortized original         254,822       259,698
issue discount of $22,678 and $25,302
Deferred revenue                                    8,192         6,504
Income taxes payable                                1,168         1,168
Deferred income taxes                               22,973        21,674
Other non-current liabilities                       15,033        19,526
Total non-current liabilities                       302,188       308,570
Total liabilities                                   510,874       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;                                  658           653
33,797 shares and 33,734 shares outstanding
Additional paid-in capital                          465,574       461,497
Treasury stock, at cost, 32,024 and 31,530          (738,244)     (728,243)
shares (6
Accumulated other comprehensive income (loss):
Unrealized gain on short-term investments, net      (53)          3
of tax
Unrecognized pension plan losses and prior          (1,355)       (1,761)
service costs, net of tax
Unrealized loss on change in fair value of          (388)         (658)
interest rate swaps, net of tax
Cumulative foreign currency translation             (7,415)       2,274
adjustments
Accumulated earnings                                614,775       592,874
Total stockholders’ equity                          333,552       326,639
Total liabilities and stockholders’ equity          $ 844,426     $ 846,941
                                                                  

                                                 
CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)
                                                                             
                          Quarter Ended               Six Months Ended
                          June 30,      June 30,      June 30,     June 30,
                                                              
                          2013          2012          2013         2012
Revenues:
Processing and            $ 131,184     $ 133,362     $            $ 269,676
related services                                      265,818
Software, maintenance     54,923        50,489        100,921      99,182
and services
Total revenues            186,107       183,851       366,739      368,858
                                                                             
Cost of revenues
(exclusive of
depreciation, shown
separately below):
Processing and            62,964        62,334        124,541      124,294
related services
Software, maintenance     31,794        30,186        63,571       58,195
and services
Total cost of             94,758        92,520        188,112      182,489
revenues
Other operating
expenses:
Research and              27,548        27,794        56,093       55,716
development
Selling, general and      37,388        33,799        72,185       65,424
administrative
Depreciation              4,770         5,874         9,770        11,711
Restructuring charges     (38)          119           863          821
Total operating           164,426       160,106       327,023      316,161
expenses
Operating income          21,681        23,745        39,716       52,697
Other income
(expense):
Interest expense          (3,180)       (4,106)       (6,109)      (8,258)
Amortization of
original issue            (1,325)       (1,226)       (2,624)      (2,429)
discount
Interest and
investment income,        188           152           343          372
net
Other, net                1,498         277           1,080        72
Total other               (2,819)       (4,903)       (7,310)      (10,243)
Income before income      18,862        18,842        32,406       42,454
taxes
Income tax provision      (6,790)       (6,972)       (5,436)      (18,778)
Net income                $ 12,072      $ 11,870      $ 26,970     $ 23,676
                                                                             
Weighted-average
shares outstanding –
Basic:
Common stock              32,125        32,194        32,129       32,293
Participating             -             1             -            34
restricted stock
Total                     32,125        32,195        32,129       32,327
                                                                             
Weighted-average
shares outstanding –
Diluted:
Common stock              32,439        32,309        32,483       32,435
Participating             -             1             -            34
restricted stock
Total                     32,439        32,310        32,483       32,469
                                                                             
Earnings per common
share:
Basic                     $ 0.38        $ 0.37        $ 0.84       $ 0.73
Diluted                   0.37          0.37          0.83         0.73
                                                                             
Cash dividends
declared per common       0.15          -             0.15         -
share
                                                                             

                                                   
CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)
                                                                             
                                                      Six Months Ended
                                                      June 30,     June 30,
                                                                
                                                      2013         2012
Cash flows from operating activities:
Net income                                            $ 26,970     $ 23,676
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation                                          9,770        11,711
Amortization                                          18,757       21,096
Amortization of original issue discount               2,624        2,429
(Gain) loss on short-term investments and other       998          (23)
Deferred income taxes                                 6,533        (6,342)
Excess tax benefit of stock-based compensation        (542)        (288)
awards
Stock-based employee compensation                     7,518        6,529
Subtotal                                              72,628       58,788
Changes in operating assets and liabilities:
Trade accounts and other receivables, net             7,848        18,117
Other current and non-current assets                  (5,833)      (3,951)
Income taxes payable/receivable                       (4,178)      1,842
Trade accounts payable and accrued liabilities        (16,763)     (3,196)
Deferred revenue                                      7,644        13,168
Net cash provided by operating activities             61,346       84,768
Cash flows from investing activities:
Purchases of property and equipment                   (11,125)     (13,550)
Purchases of short-term investments                   (98,883)     (24,779)
Proceeds from sale/maturity of short-term             41,361       16,800
investments
Acquisition of and investments in client              (3,808)      (2,948)
contracts
Net cash used in investing activities                 (72,455)     (24,477)
Cash flows from financing activities:
Proceeds from issuance of common stock                921          1,007
Repurchase of common stock                            (14,883)     (13,541)
Payments on acquired equipment financing              (1,894)      (663)
Payments on long-term debt                            (7,500)      (17,000)
Excess tax benefit of stock-based compensation        542          288
awards
Net cash used in financing activities                 (22,814)     (29,909)
Effect of exchange rate fluctuations on cash          (2,975)      (1,152)
Net increase (decrease) in cash and cash              (36,898)     29,230
equivalents
Cash and cash equivalents, beginning of period        133,747      146,733
Cash and cash equivalents, end of period              $ 96,849     $ 175,963
                                                                             
                                                                             
Supplemental disclosures of cash flow
information:
Net cash paid during the period for -
Interest                                              $ 4,770      $ 6,738
Income taxes                                          2,306        23,115
Non-cash financing activity –
Cash dividends payable                                5,069        -
                                                                             

EXHIBIT 1

                                                        
CSG SYSTEMS INTERNATIONAL, INC.

SUPPLEMENTAL REVENUE ANALYSIS
                                                                             
Revenues by Geography
                          Quarter Ended     Quarter Ended      Quarter Ended

                          June 30, 2013     March 31, 2013     June 30, 2012
Americas                  85%               85%                88%
Europe, Middle East       9%                11%                8%
and Africa
Asia Pacific              6%                4%                 4%
Total Revenues            100%              100%               100%
                                                                             

Revenues by Significant Customers: 10% or more of Revenues

                                   Quarter         Quarter         Quarter
                                   Ended           Ended           Ended
                                                            
                                   June 30,        March 31,       June 30,
                                   2013            2013            2012
Comcast                            18%             20%             19%
DISH                               15%             15%             14%
Time Warner     10%             11%             10%
                                                                             

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

                                      June 30,     March 31,     June 30,
                                                          
                                      2013         2013          2012
Cable/Satellite Customer Accounts     49,072       49,151        49,171
                                                                          

                                  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   EPS
                                                    Income
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 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 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             Quarter Ended
                                                  
                             June 30, 2013             June 30, 2012
                             Amounts    % of         Amounts    % of
                                          Revenues                  Revenues
GAAP operating income        $ 21,681     11.6%        $ 23,745     12.9%
Restructuring charges        (38)         (0.0)%       119          0.1%
Ascade
acquisition-related          -            -            344          0.2%
charges
Stock-based compensation     3,908        2.1%         3,382        1.8%
Amortization of acquired     4,811        2.6%         5,545        3.0%
intangible assets
Non-GAAP operating           $ 30,362     16.3%        $ 33,135     18.0%
income
                                                                             
                             Six Months Ended          Six Months Ended

                             June 30, 2013             June 30, 2012
                             Amounts      % of         Amounts      % of
                                          Revenues                  Revenues
GAAP operating income        $ 39,716     10.8%        $ 52,697     14.3%
Restructuring charges        863          0.2%         821          0.2%
Ascade
acquisition-related          -            -            344          0.1%
charges
Stock-based compensation     7,518        2.1%         6,529        1.8%
Amortization of acquired     9,913        2.7%         11,055       3.0%
intangible assets
Non-GAAP operating           $ 58,010     15.8%        $ 71,446     19.4%
income
                                                                             

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             Quarter Ended
                                                   
                               June 30, 2013             June 30, 2012
                               Pretax                    Pretax
                                           EPS (3)                EPS
                               Amount                    Amount       (4)
                               (1)                       (1)
GAAP income before income      $ 18,862      $ 0.37      $ 18,842     $ 0.37
taxes
Restructuring charges          (38)                      119
Ascade acquisition-related     -                         344
charges
Stock-based compensation       3,908                     3,382
Amortization of acquired       4,811                     5,545
intangible assets
Amortization of OID            1,325                    1,226        
Non-GAAP income before         $ 28,868      $ 0.57      $ 29,458     $ 0.56
income taxes (2)
                                                                             
                               Six Months Ended          Six Months Ended

                               June 30, 2013             June 30, 2012
                               Pretax                    Pretax
                                             EPS (3)                  EPS
                               Amount                    Amount       (4)
                               (1)                       (1)
GAAP income before income      $ 32,406      $ 0.83      $ 42,454     $ 0.73
taxes
Restructuring charges          863                       821
Ascade acquisition-related     -                         344
charges
Stock-based compensation       7,518                     6,529
Amortization of acquired       9,913                     11,055
intangible assets
Amortization of OID            2,624                    2,429        
Non-GAAP income before         $ 53,324      $ 1.05      $ 63,632     $ 1.16
income taxes (2)

      These items (on a pretax basis) are calculated in accordance with GAAP,
(1)  and are reflected as part of the results of operations in the
      accompanying Unaudited Condensed Consolidated Statements of Income.
      
      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
(2)   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.
      
      For the second quarter and six months ended June 30, 2013, the estimated
      effective income tax rate for non-GAAP purposes was approximately 36%
      for both periods, and the weighted-average diluted shares outstanding
      were 32.4 million and 32.5 million, respectively. For the six months
      ended June 30, 2013, the GAAP effective income tax rate was
      approximately 17%, primarily as a result of the recognition of the 2012
(3)   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 six
      months ended June 30, 2013 excludes the impact of these tax credits, as
      they were reflected in the 2012 non-GAAP effective income tax rate.
      
      For the second quarter and six months ended June 30, 2012, the estimated
(4)   effective income rates for non-GAAP purposes were approximately 39% and
      41%, respectively, and the weighted-average diluted shares outstanding
      were 32.3 million and 32.5 million, respectively.

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             Six Months Ended
                                                 
                             June 30,                  June 30,
                             2013       2012         2013       2012
GAAP operating income        $ 21,681     $ 23,745     $ 39,716     $ 52,697
Restructuring charges -      (38)         119          863          821
10,600 - 18,317
Ascade
acquisition-related          -            344          -            344
charges
Depreciation                 4,770        5,874        9,770        11,711
Amortization of acquired     4,811        5,545        9,913        11,055
intangible assets (5)
Amortization of other        3,598        4,550        7,614        8,624
intangible assets (5)
Stock-based compensation     3,908        3,382        7,518        6,529
Adjusted EBITDA              $ 38,730     $ 43,559     $ 75,394     $ 91,781
Adjusted EBITDA as a         21%          24%          21%          25%
percentage of revenues
                                                                             
                             Quarter Ended             Six Months Ended

                             June 30,                  June 30,
                             2013         2012         2013         2012
Net income                   $ 12,072     $ 11,870     $ 26,970     $ 23,676
Interest expense (6)         3,180        4,106        6,109        8,258
Amortization of OID          1,325        1,226        2,624        2,429
Interest and investment      (1,686)      (429)        (1,423)      (444)
income and other, net
Income tax provision         6,790        6,972        5,436        18,778
Depreciation                 4,770        5,874        9,770        11,711
Amortization of acquired     4,811        5,545        9,913        11,055
intangible assets (5)
Amortization of other        3,598        4,550        7,614        8,624
intangible assets (5)
Stock-based compensation     3,908        3,382        7,518        6,529
Ascade
acquisition-related          -            344          -            344
charges
Restructuring charges        (38)         119          863          821
Adjusted EBITDA              $ 38,730     $ 43,559     $ 75,394     $ 91,781
                                                                             
                             Quarter Ended             Six Months Ended

                             June 30,                  June 30,
                             2013         2012         2013         2012
Cash flows from              $ 38,802     $ 36,579     $ 61,346     $ 84,768
operating activities
Income tax provision         6,790        6,972        5,436        18,778
Changes in operating
assets and liabilities       (7,580)      (3,450)      4,749        (19,638)
and deferred taxes
Interest expense (6)         3,180        4,106        6,109        8,258
Interest and investment      (1,686)      (429)        (1,423)      (444)
income and other, net
Ascade
acquisition-related          -            344          -            344
charges
Restructuring charges        (38)         119          (19)         821
Other                        (738)        (682)        (804)        (1,106)
Adjusted EBITDA              $ 38,730     $ 43,559     $ 75,394     $ 91,781
                                                                             

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

                               Quarter Ended            Six Months Ended
                                                  
                               June 30,                 June 30,
                               2013      2012         2013       2012
Amortization of acquired       $ 4,811     $ 5,545      $ 9,913      $ 11,055
intangible assets
Amortization of other          3,598       4,550        7,614        8,624
intangible assets
Amortization of deferred       612         699          1,230        1,417
financing costs
Total amortization             $ 9,021     $ 10,794     $ 18,757     $ 21,096

(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             Six Months Ended
                                                 
                             June 30,                  June 30,
                             2013       2012         2013       2012
Cash flows from              $ 38,802     $ 36,579     $ 61,346     $ 84,768
operating activities
Purchases of property        (6,633)      (11,232)     (11,125)     (13,550)
and equipment
Non-GAAP free cash flow      $ 32,169     $ 25,347     $ 50,221     $ 71,218
                                                                             

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 (7)                                    0.5%
Stock-based compensation (8)                                 2.0%
Amortization of acquired intangible assets (9)               2.5%
Non-GAAP operating income margin (“approximately 16%”)       16.0%

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

Non-GAAP EPS:

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

                         2013 Guidance Range
                          Low Range                 High Range
                           Pretax                      Pretax
                                         EPS                      EPS
                           Amount (10)     (12)        Amount         (12)
                                                       (10)
GAAP income before         $ 60,000        $ 1.31      $ 65,000       $ 1.41
income taxes
Restructuring charges      4,000                       4,000
Stock-based                16,000                      16,000
compensation
Amortization of
acquired intangible        19,000                      19,000
assets
Amortization of OID        5,000                       5,000
Non-GAAP income before     $ 104,000       $ 2.05      $ 109,000      $ 2.15
income taxes (11)

       These items (on a pretax basis) are calculated in accordance with GAAP,
(10)  and will be reflected as part of the results of operations in CSG’s
       Unaudited Condensed Consolidated Statements of Income.
       
       Non-GAAP EPS is calculated by taking the non-GAAP income before income
       taxes and deducting from this amount non-GAAP income taxes calculated
(11)   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.
       
       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
(12)   $6 million, or approximately $0.18 per diluted share. 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
       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                                                       21,000
Amortization of acquired intangible assets                         19,000
Amortization of other intangible assets                            15,000
Stock-based compensation                                           16,000
Adjusted EBITDA                                                    $ 155,000
Adjusted EBITDA as a percentage of revenues                        21%
                                                                   
                                                                   2013
Net income                                                         $ 45,000
Interest expense                                                   13,000
Interest and investment income and other, net                      (1,000)
Amortization of OID                                                5,000
Income tax provision                                               18,000
Depreciation                                                       21,000
Amortization of acquired of intangible assets                      19,000
Amortization of other intangible assets                            15,000
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
Interest and investment income and other, net                      (1,000)
Changes in operating assets and liabilities and deferred taxes     6,000
Interest expense                                                   13,000
Restructuring charges                                              4,000
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):

                                                                   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

Contact:

CSG Systems International, Inc.
Liz Bauer, 303-804-4065
Senior Vice President of Investor Relations & Strategic Communications
liz.bauer@csgi.com
 
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