CSG Systems International Reports Results for Third Quarter 2013

  CSG Systems International Reports Results for Third Quarter 2013

Business Wire

ENGLEWOOD, Colo. -- October 29, 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 September 30, 2013.

Key Financial Highlights:

  *Third quarter 2013 results:

       *Total revenues were $186.2 million.
       *Non-GAAP operating income was $29.4 million, or 15.8% of total
         revenues and GAAP operating income was $20.6 million, or 11.0% of
         total revenues.
       *Non-GAAP earnings per diluted share (EPS) was $0.52. GAAP EPS was
         $0.47.

  *Cash flows from operations for the quarter were $25.2 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 September 25,
    2013.

“We had another solid quarter, in both revenues and earnings, demonstrating
the strength of our business model and our focus on execution,” said Peter
Kalan, president and chief executive officer of CSG International. “We
continue to see strong activity and momentum building in two areas that we
believe are important to the company’s long-term growth: our content
monetization platform which enables providers to compete in an all-digital
world, and the expansion of our managed services offerings to our clients
around the globe.”

Financial Overview (unaudited)

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

           Quarter Ended September 30,          Nine Months Ended September 30,
                                      Percent                             Percent
                                  Change                          Change
              2013          2012                    2013          2012
Revenues    $ 186,180     $ 190,001     (2  )%    $ 552,919     $ 558,859     (1   )%
Non-GAAP
Results:
Operating   $ 29,365      $ 31,071      (5  )%    $ 87,375      $ 102,517     (15  )%
Income
Operating
Income        15.8    %     16.4    %   -           15.8    %     18.3    %   -
Margin
EPS         $ 0.52        $ 0.50        4   %     $ 1.58        $ 1.66        (5   )%
GAAP
Results:
Operating   $ 20,553      $ 21,728      (5  )%    $ 60,269      $ 74,425      (19  )%
Income
Operating
Income        11.0    %     11.4    %   -           10.9    %     13.3    %   -
Margin
EPS         $ 0.47        $ 0.29        62  %     $ 1.30        $ 1.02        27   %
                                                                                   

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 third quarter 2013 were $186.2 million, a 2%
decrease when compared to revenues of $190.0 million for the third quarter of
2012, and relatively consistent when compared to the $186.1 million reported
for the second quarter of 2013. The year-over-year decrease can be attributed
primarily to the impact of the Comcast and Time Warner pricing adjustments
that were effective in 2013.

Non-GAAP Results: Non-GAAP operating income for the third quarter of 2013 was
$29.4 million, or 15.8%  of total revenues, compared to $31.1 million, or
16.4%, for the third quarter of 2012. Non-GAAP operating income for the second
quarter of 2013 was $30.4 million, or 16.3% 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 that
were effective in 2013.

Non-GAAP EPS for the third quarter of 2013 was $0.52, compared to non-GAAP EPS
of $0.50 for the third quarter of 2012. Non-GAAP EPS for the second quarter of
2013 was $0.57.

GAAP Results: GAAP operating income for the third quarter of 2013 was $20.6
million, or 11.0%  of total revenues, compared to $21.7 million, or 11.4%, for
the same period in 2012.

GAAP EPS for the third quarter of 2013 was $0.47, compared to $0.29 for the
third quarter of 2012, with the increase primarily related to an unusually low
GAAP effective income tax rate for the current quarter of 8%. This third
quarter income tax rate benefited primarily from the recognition of
incremental R&D income tax credits claimed for development activities from
previous years, which provided a benefit of approximately $0.17 per diluted
share for the third quarter of 2013.

Balance Sheet and Cash Flows

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

                              September 30,  June 30,     December 31,
                                    2013            2013          2012
Cash, cash equivalents,
and short-term                      $  193,898      $ 189,294     $  169,321
investments
Net billed trade                       174,757        172,521        191,943
accounts receivable
Total long-term debt:
Par value                           $  288,750      $ 292,500     $  300,000
Unamortized OID                       (21,327  )    (22,678 )     (25,302 )
Net debt carrying                   $  267,423     $ 269,822    $  274,698 
amount
                                                                             

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

                                   September 30,  June 30,    September 30,
                                    2013            2013         2012
Cash Flows from Operating
Activities:
Operations                          $  29,634       $ 31,308     $  32,608
Changes in operating assets and       (4,398  )     7,494       (8,954  )
liabilities
Net cash provided by operating      $  25,236      $ 38,802    $  23,654  
activities
Cash Flows from Investing
Activities:
Purchases of property and           $  (7,861  )    $ (6,633 )   $  (6,938  )
equipment
Cash Flows from Financing
Activities:
Dividend payments (1)               $  (9,630  )    $ -          $  -
Repurchase of common stock under       (128    )      (3,490 )      (2,722  )
stock repurchase program
Payments on long-term debt             (3,750  )      (3,750 )      (5,000  )
                                                                            

      After initiating a cash dividend in June of 2013, the first two dividend
      payments to shareholders of $0.15 per share of common stock fell during
(1)  the third quarter of 2013 for a total of $9.6 million, as reflected in
      CSG’s cash flow results. Going forward, CSG expects to pay cash
      dividends quarterly in December, March, June and September 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              $1.49 - $1.61
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 October 29, 2013, at 5:00 p.m. ET,
to discuss CSG's third quarter results. The call will be carried live and
archived on the Internet. A link to the conference call is available at
www.csgi.com. In addition, to reach the conference by phone, dial (877)
941-8609 and ask the operator for the CSG International conference call and
Liz Bauer, chairperson.

Additional Information

For information about CSG, please visit CSG’s 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, 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)
                                                                  
                                                  September 30,   December 31,
                                                  2013            2012
ASSETS
Current assets:
Cash and cash equivalents                         $  92,736       $ 133,747
Short-term investments                              101,162      35,574   
Total cash, cash equivalents, and short-term         193,898        169,321
investments
Trade accounts receivable:
Billed, net of allowance of $3,043 and $3,147        174,757        191,943
Unbilled                                             41,347         28,463
Deferred income taxes                                14,095         22,244
Income taxes receivable                              5,903          6,469
Other current assets                                27,891       21,915   
Total current assets                                457,891      440,355  
Non-current assets:
Property and equipment, net of depreciation of       34,674         39,429
$132,020 and $120,643
Software, net of amortization of $77,106 and         41,099         38,372
$68,496
Goodwill                                             231,235        233,365
Client contracts, net of amortization of             61,187         75,303
$74,137 and $182,182
Deferred income taxes                                5,475          2,596
Income taxes receivable                              2,299          1,291
Other assets                                        16,004       16,230   
Total non-current assets                            391,973      406,586  
Total assets                                      $  849,864     $ 846,941  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt              $  15,000       $ 15,000
Client deposits                                      30,239         33,807
Trade accounts payable                               33,211         30,473
Accrued employee compensation                        48,622         61,083
Deferred revenue                                     50,961         47,691
Income taxes payable                                 2,360          2,116
Other current liabilities                           17,193       21,562   
Total current liabilities                           197,586      211,732  
Non-current liabilities:
Long-term debt, net of unamortized original          252,423        259,698
issue discount of $21,327 and $25,302
Deferred revenue                                     9,750          6,504
Income taxes payable                                 2,068          1,168
Deferred income taxes                                18,364         21,674
Other non-current liabilities                       15,126       19,526   
Total non-current liabilities                       297,731      308,570  
Total liabilities                                   495,317      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;                                   659            653
33,839 shares and 33,734 shares outstanding
Additional paid-in capital                           469,878        461,497
Treasury stock, at cost, 32,030 and 31,530           (738,372 )     (728,243 )
shares
Accumulated other comprehensive income (loss):
Unrealized gain on short-term investments, net       28             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           (235     )     (658     )
interest rate swaps, net of tax
Cumulative foreign currency translation              (1,056   )     2,274
adjustments
Accumulated earnings                                625,000      592,874  
Total stockholders’ equity                          354,547      326,639  
Total liabilities and stockholders’ equity        $  849,864     $ 846,941  
                                                                             

CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)
                                                 
                    Quarter Ended                   Nine Months Ended
                    September 30,   September 30,   September      September
                    2013           2012            30,           30,
                                                    2013           2012
Revenues:
Processing and      $  133,294      $  138,993      $  399,112     $ 408,669
related services
Software,
maintenance and       52,886        51,008        153,807     150,190 
services
Total revenues        186,180       190,001       552,919     558,859 
                                                                   
Cost of revenues
(exclusive of
depreciation,
shown separately
below):
Processing and         65,184          67,585          189,725       191,879
related services
Software,
maintenance and       29,714        32,826        93,285      91,021  
services
Total cost of          94,898          100,411         283,010       282,900
revenues
Other operating
expenses:
Research and           27,600          28,526          83,693        84,242
development
Selling, general
and                    38,444          33,963          110,629       99,387
administrative
Depreciation           4,609           5,373           14,379        17,084
Restructuring         76            -             939         821     
charges
Total operating       165,627       168,273       492,650     484,434 
expenses
Operating income      20,553        21,728        60,269      74,425  
Other income
(expense):
Interest expense       (2,615   )      (4,078   )      (8,724  )     (12,336 )
Amortization of
original issue         (1,351   )      (1,251   )      (3,975  )     (3,680  )
discount
Interest and
investment             174             263             517           635
income, net
Other, net            (130     )     452           950         524     
Total other           (3,922   )     (4,614   )     (11,232 )    (14,857 )
Income before          16,631          17,114          49,037        59,568
income taxes
Income tax            (1,331   )     (7,701   )     (6,767  )    (26,479 )
provision
Net income          $  15,300      $  9,413       $  42,270     $ 33,089  
                                                                   
Weighted-average
shares
outstanding –
Basic:
Common stock           32,084          31,980          32,114        32,189
Participating         -             -             -           22      
restricted stock
Total                 32,084        31,980        32,114      32,211  
                                                                   
Weighted-average
shares
outstanding –
Diluted:
Common stock           32,664          32,398          32,553        32,423
Participating         -             -             -           22      
restricted stock
Total                 32,664        32,398        32,553      32,445  
                                                                   
Earnings per
common share:
Basic               $  0.48         $  0.29         $  1.32        $ 1.03
Diluted                0.47            0.29            1.30          1.02
                                                                   
Cash dividends
declared per        $  0.15         $  -            $  0.30        $ -
common share
                                                                             

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)
                                             
                                               Nine Months Ended
                                               September 30,  September 30,
                                               2013            2012
Cash flows from operating activities:
Net income                                     $  42,270       $  33,089
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation                                      14,379          17,084
Amortization                                      28,413          33,294
Amortization of original issue discount           3,975           3,680
Impairment of client contract                     -               2,500
(Gain) loss on short-term investments and         1,264           (46      )
other
Deferred income taxes                             1,083           (7,789   )
Excess tax benefit of stock-based                 (619     )      (406     )
compensation awards
Stock-based employee compensation                11,497        9,990    
Subtotal                                          102,262         91,396
Changes in operating assets and liabilities:
Trade accounts receivable, net                    75              13,358
Other current and non-current assets              (4,641   )      (2,293   )
Income taxes payable/receivable                   1,359           (151     )
Trade accounts payable and accrued                (15,724  )      (92      )
liabilities
Deferred revenue                                 3,251         6,204    
Net cash provided by operating activities        86,582        108,422  
Cash flows from investing activities:
Purchases of property and equipment               (18,986  )      (20,488  )
Purchases of short-term investments               (129,259 )      (45,499  )
Proceeds from sale/maturity of short-term         62,720          33,152
investments
Acquisition of business, net of cash              -               (19,085  )
acquired
Acquisition of and investments in client          (5,349   )      (4,253   )
contracts
Proceeds from the disposition of business        1,734         -        
operations
Net cash used in investing activities            (89,140  )     (56,173  )
Cash flows from financing activities:
Proceeds from issuance of common stock            1,283           1,572
Payment of cash dividends                         (9,630   )      -
Repurchase of common stock                        (15,124  )      (16,323  )
Payments on acquired asset financing              (1,894   )      (765     )
Payments on long-term debt                        (11,250  )      (22,000  )
Excess tax benefit of stock-based                619           406      
compensation awards
Net cash used in financing activities            (35,996  )     (37,110  )
Effect of exchange rate fluctuations on cash     (2,457   )     (1,564   )
Net increase (decrease) in cash and cash          (41,011  )      13,575
equivalents
Cash and cash equivalents, beginning of          133,747       146,733  
period
Cash and cash equivalents, end of period       $  92,736      $  160,308  
                                                                             
                                                                             
Supplemental disclosures of cash flow
information:
Net cash paid during the period for -
Interest                                       $  8,247        $  11,193
Income taxes                                      3,554           33,196
                                                                             

EXHIBIT 1                                                   
                                                                
CSG SYSTEMS INTERNATIONAL, INC.
SUPPLEMENTAL REVENUE ANALYSIS
                                                                
Revenues by Geography
                                   Quarter Ended    Quarter     Quarter Ended
                                                    Ended
                                   September 30,                September 30,
                                   2013             June 30,    2012
                                                    2013
Americas                           85%              85%         87%
Europe, Middle East and Africa     11%              9%          9%
Asia Pacific                       4%               6%          4%
Total Revenues                     100%             100%        100%
                                                                
Revenues by Significant Customers: 10% or more of Revenues
                                                                
                                   Quarter Ended    Quarter     Quarter Ended
                                                    Ended
                                   September 30,                September 30,
                                   2013             June 30,    2012
                                                    2013
Comcast                            19%              18%         21%
DISH                               15%              15%         13%
Time Warner                        11%              10%         10%
                                                                
ACP Customer Accounts (in thousands, at end of period)
                                                                
                                   September 30,    June 30,    September 30,

                                   2013             2013        2012
Cable/Satellite Customer           49,151           49,072      49,224
Accounts
                                                                

                                  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
                        September 30, 2013           September 30, 2012
                        Amounts      % of           Amounts       % of
                                      Revenues                      Revenues
GAAP operating          $  20,553        11.0  %     $  21,728        11.4 %
income
Restructuring              76            0.1   %        -             -
charges
Stock-based                3,979         2.1   %        3,461         1.9  %
compensation
Amortization of
acquired intangible       4,757        2.6   %       5,882        3.1  %
assets
Non-GAAP operating      $  29,365       15.8  %     $  31,071       16.4 %
income
                                                                             
                        Nine Months Ended            Nine Months Ended
                        September 30, 2013           September 30, 2012
                        Amounts       % of           Amounts        % of
                                      Revenues                      Revenues
GAAP operating          $  60,269        10.9  %     $  74,425        13.3 %
income
Restructuring              939           0.2   %        821           0.1  %
charges
Ascade
acquisition-related        -             -              344           0.1  %
charges
Stock-based                11,497        2.1   %        9,990         1.8  %
compensation
Amortization of
acquired intangible       14,670       2.6   %       16,937       3.0  %
assets
Non-GAAP operating      $  87,375       15.8  %     $  102,517      18.3 %
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
                        September 30, 2013           September 30, 2012
                        Pretax        EPS (3)        Pretax         EPS (4)
                        Amount (1)                   Amount (1)
GAAP income before      $  16,631     $  0.47        $  17,114      $ 0.29
income taxes
Restructuring              76                           -
charges
Stock-based                3,979                        3,461
compensation
Amortization of
acquired intangible        4,757                        5,882
assets
Amortization of OID       1,351                       1,251
Non-GAAP income
before income taxes     $  26,794     $  0.52       $  27,708      $ 0.50 
(2)
                                                                             
                        Nine Months Ended            Nine Months Ended
                       September 30, 2013
                                                     September 30, 2012
                        Pretax        EPS (3)        Pretax         EPS (4)
                        Amount (1)                   Amount (1)
GAAP income before      $  49,037     $  1.30        $  59,568      $ 1.02
income taxes
Restructuring              939                          821
charges
Ascade
acquisition-related        -                            344
charges
Stock-based                11,497                       9,990
compensation
Amortization of
acquired intangible        14,670                       16,937
assets
Amortization of OID       3,975                       3,680
Non-GAAP income
before income taxes     $  80,118     $  1.58       $  91,340      $ 1.66 
(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 third quarter and nine months ended September 30, 2013, the
(3)   estimated effective income tax rate for non-GAAP purposes was
      approximately 36% for both periods, and the weighted-average diluted
      shares outstanding were 32.7 million and 32.6 million, respectively.
      
      For the third quarter and nine months ended September 30, 2013, the GAAP
      effective income tax rate was unusually low at approximately 8% and 14%,
      respectively, driven in part by incremental R&D income tax credits
      claimed for development activities from previous years. The lower tax
      rates provided a benefit of approximately $0.17 per diluted share for
      both the quarter and nine months ended September 30, 2013. These unusual
      tax benefits are excluded from our non-GAAP effective income tax rates
      for these same periods.
      
      In addition to this, the rate for the nine months ended September 30,
      2013 also benefited from the recognition of the 2012 R&D tax credits of
      approximately $0.18 per diluted share, that 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 nine months ended
      September 30, 2013 excludes the impact of these 2012 tax credits, as
      they were reflected in the 2012 non-GAAP effective income tax rate.

      For both the third quarter and nine months ended September 30, 2012, the
(4)   estimated effective income rate for non-GAAP purposes was approximately
      41%, and the weighted-average diluted shares outstanding were 32.4
      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 operating
activities are provided below for the indicated periods (in thousands, except
percentages):

                      Quarter Ended             Nine Months Ended
                                            
                      September 30,             September 30,
                       2013      2012      2013              2012    
GAAP operating        $ 20,553     $ 21,728     $ 60,269           $ 74,425
income
Restructuring           76           -          939                  821
charges
Ascade
acquisition-related     -            -          -                    344
charges
Depreciation            4,609        5,373      14,379               17,084
Amortization of
acquired intangible     4,757        5,882      14,670               16,937
assets (5)
Amortization of
other intangible        4,303        5,622      11,917               14,246
assets (5)
Stock-based            3,979      3,461     11,497             9,990   
compensation
Adjusted EBITDA       $ 38,277    $ 42,066    $ 113,671         $ 133,847 
Adjusted EBITDA as
a percentage of        21     %    22     %   21             %    24      %
revenues
                                                                               
                                                                               
                      Quarter Ended             Nine Months Ended

                      September 30,             September 30,
                       2013       2012       2013      2012           
Net income            $ 15,300     $ 9,413      $ 42,270      $ 33,089
Interest expense        2,615        4,078        8,724       12,336
(6)
Amortization of OID     1,351        1,251        3,975       3,680
Interest and
investment income       (44    )     (715   )     (1,467  )   (1,159         )
and other, net
Income tax              1,331        7,701        6,767       26,479
provision
Depreciation            4,609        5,373        14,379      17,084
Amortization of
acquired intangible     4,757        5,882        14,670      16,937
assets (5)
Amortization of
other intangible        4,303        5,622        11,917      14,246
assets (5)
Stock-based             3,979        3,461        11,497      9,990
compensation
Ascade
acquisition-related     -            -            -           344
charges
Restructuring          76         -          939        821            
charges
Adjusted EBITDA       $ 38,277    $ 42,066    $ 113,671    $ 133,847      
                                                                               
                                                                               
                      Quarter Ended             Nine Months Ended

                      September 30,             September 30,
                       2013       2012      2013               2012    
Cash flows from
operating             $ 25,236     $ 23,654     $ 86,582           $ 108,422
activities
Income tax              1,331        7,701      6,767                26,479
provision
Changes in
operating assets        9,848        10,401     14,597               (9,237  )
and liabilities and
deferred taxes
Impairment of           -            (2,500 )   -                    (2,500  )
client contract
Interest expense        2,615        4,078      8,724                12,336
(6)
Interest and
investment income       (44    )     (715   )   (1,467         )     (1,159  )
and other, net
Ascade
acquisition-related     -            -          -                    344
charges
Restructuring           76           -          57                   821
charges
Other                  (785   )    (553   )   (1,589         )    (1,659  )
Adjusted EBITDA       $ 38,277    $ 42,066    $ 113,671         $ 133,847 
                                                                               

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

                                  Quarter Ended          Nine Months Ended
                                                   
                                  September 30,          September 30,
                                   2013    2012        2013     2012
Amortization of acquired          $ 4,757   $ 5,882      $ 14,670   $ 16,937
intangible assets
Amortization of other               4,303     5,622        11,917     14,246
intangible assets
Amortization of deferred           596      694         1,826     2,111
financing costs
Total amortization                $ 9,656   $ 12,198     $ 28,413   $ 33,294
                                                                             

(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               Nine Months Ended
                                             
                       September 30,               September 30,
                        2013      2012         2013       2012    
Cash flows from
operating              $ 25,236     $ 23,654       $ 86,582      $ 108,422
activities
Purchases of
property and            (7,861 )    (6,938 )      (18,986 )    (20,488 )
equipment
Non-GAAP free cash     $ 17,375    $ 16,716      $ 67,596     $ 87,934  
flow
                                                                             

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 (in thousands, except per share
amounts):

                            2013 Guidance Range
                             Low Range               High Range
                             Pretax       EPS (12)   Pretax       EPS (12)
                             Amount (10)              Amount (10)
GAAP income before income    $  61,000     $  1.49    $  66,000     $  1.61
taxes
Restructuring charges           4,000                    4,000
Stock-based compensation        16,000                   16,000
Amortization of acquired        19,000                   19,000
intangible assets
Amortization of OID            5,000                   5,000
Non-GAAP income before       $  105,000    $  2.05    $  110,000    $  2.15
income taxes (11)
                                                                             

       These items (on a pretax basis) are calculated in accordance with
(10)  GAAP, 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
(11)   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.

       For 2013, the estimated effective income tax rate for non-GAAP
(12)   purposes is expected to be approximately 36%, and the
       weighted-average diluted shares outstanding are expected to be
       32.8 million.

       The GAAP effective income tax rate is expected to be
       approximately 20% for the year, driven in part by incremental R&D
       income tax credits claimed for development activities from
       previous years. The lower tax rate provides a benefit of
       approximately $0.17 per diluted share. These unusual tax benefits
       are excluded from our non-GAAP effective income tax rates for the
       year.

       In addition to this, the GAAP effective income tax rate also
       benefited from the recognition of the 2012 R&D tax credits of
       approximately $0.18 per diluted share, that were recognized for
       GAAP purposes in the first quarter of 2013 since the credit       rate.
       legislation was passed by Congress in January 2013. The effective
       income tax rate for non-GAAP purposes of approximately 36% also
       excludes the impact of these 2012 tax credits, as they were
       reflected in the 2012 non-GAAP effective income tax
                                                                         

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, except percentages):

                                           2013
GAAP operating income                       $        80,000
Restructuring charges                                4,000
Depreciation                                         20,000
Amortization of acquired                             19,000
intangible assets
Amortization of other intangible                     16,000
assets
Stock-based compensation                            16,000         
Adjusted EBITDA                             $        155,000        
Adjusted EBITDA as a percentage of                  21             %
revenues
                                                                             
                                                                             
                                            2013
Net income                                  $        51,000
Interest expense                                     12,000
Interest and investment income and                   (1,000         )
other, net
Amortization of OID                                  5,000
Income tax provision                                 13,000
Depreciation                                         20,000
Amortization of acquired of                          19,000
intangible assets
Amortization of other intangible                     16,000
assets
Stock-based compensation                             16,000
Restructuring charges                               4,000          
Adjusted EBITDA                             $        155,000        
                                                                             
                                                                             
                                            2013
Cash flows from operating                   $        115,000
activities (midpoint of guidance)
Income tax provision                                 13,000
Interest and investment income and                   (1,000         )
other, net
Changes in operating assets and                      12,000
liabilities and deferred taxes
Interest expense                                     12,000
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                   $        115,000
activities (midpoint of guidance)
Purchases of property and                           (35,000        )
equipment
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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