Form 8-K CSG SYSTEMS INTERNATIONA For: May 05

Delaware

0-27512

47-0783182

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

9555 Maroon Circle, Englewood, CO

80112

(Address of principal executive offices)

(Zip Code)

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

99.1

Press release of CSG Systems International, Inc. dated May 5, 2015

CSG SYSTEMS INTERNATIONAL, INC.

By:

 /s/ Rolland B. Johns 

Rolland B. Johns,

Chief Accounting Officer

PRESS RELEASE

•

First quarter 2015 financial results:

•

Total revenues were $185.6 million.

•

Non-GAAP operating income was $30.8 million, or 16.6% of total revenues and GAAP operating income was $21.9 million, or 11.8% of total revenues.

•

Non-GAAP earnings per diluted share (EPS) was $0.51. GAAP EPS was $0.28.

•

Cash flows from operations were $18.9 million.

•

CSG returned approximately $63 million to shareholders during the quarter through dividends and its stock repurchase program.

•

Paid a quarterly cash dividend of $0.175 per share of common stock, or a total of approximately $6 million.

•

Repurchased $57 million of common stock during the quarter, $50 million of which was through an accelerated stock repurchase plan.

•

In February 2015, CSG refinanced its existing credit agreement, extending the term of the agreement through February 2020, and upsizing the revolving credit facility from $100 million to $200 million.

•

CSG extended its contract with Charter, its fourth largest client, through December 31, 2019.

•

CSG extended its contract with Eastlink, a cable and broadband operator in Canada, for an additional seven years through December 31, 2023.

Quarter Ended March 31,

2015

2014

Percent
Change

Revenues

$

185,631

$

188,028

(1

)%

Non-GAAP Results:

Operating Income

$

30,806

$

29,905

3

%

Operating Income Margin

16.6

%

15.9

%

—

EPS

$

0.51

$

0.52

(2

)%

GAAP Results:

Operating Income

$

21,893

$

20,914

5

%

Operating Income Margin

11.8

%

11.1

%

—

EPS

$

0.28

$

0.28

0

%

As of May 5, 2015

Previous

Revenues

$755 - $770 million

$750 - $770 million  

Non-GAAP EPS

$2.33 - $2.40 

$2.20 - $2.30   

GAAP EPS

$1.38 - $1.44

$1.36 - $1.45  

Non-GAAP Adjusted EBITDA

$162 - $165 million

$154 - $158 million 

Cash flows from operating activities

$105 - $120 million

$100 - $115 million 

•

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

•

Continued market acceptance of CSG’s products and services;

•

Timing and success of previously announced client customer account migrations to CSG’s billing platform;

•

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.

March 31,
2015

December 31,
2014

ASSETS

Current assets:

Cash and cash equivalents

$

89,277

$

81,712

Short-term investments

80,617

120,088

Total cash, cash equivalents, and short-term investments

169,894

201,800

Trade accounts receivable:

Billed, net of allowance of $3,187 and $3,323

180,096

184,369

Unbilled

44,281

42,439

Deferred income taxes

10,086

13,204

Income taxes receivable

5,799

7,851

Other current assets

28,412

28,470

Total current assets

438,568

478,133

Non-current assets:

Property and equipment, net of depreciation of $140,469 and $138,065

36,991

38,326

Software, net of amortization of $88,531 and $86,797

42,086

44,732

Goodwill

219,666

225,269

Client contracts, net of amortization of $78,015 and $88,585

44,029

46,903

Deferred income taxes

9,169

8,890

Income taxes receivable

1,282

1,333

Other assets

18,425

16,142

Total non-current assets

371,648

381,595

Total assets

$

810,216

$

859,728

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt

$

7,500

$

22,500

Client deposits

32,952

35,791

Trade accounts payable

31,224

37,052

Accrued employee compensation

40,858

51,441

Deferred revenue

47,141

40,004

Income taxes payable

486

984

Other current liabilities

21,295

23,375

Total current liabilities

181,456

211,147

Non-current liabilities:

Long-term debt, net of unamortized original issue discount of $12,653 and $14,169

277,972

233,331

Deferred revenue

8,798

9,648

Income taxes payable

1,613

1,613

Deferred income taxes

18,588

20,445

Other non-current liabilities

14,751

15,821

Total non-current liabilities

321,722

280,858

Total liabilities

503,178

492,005

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; 32,752 shares and 33,945 shares outstanding

671

667

Common stock warrants, 2,851 and 2,851 warrants issued and outstanding

7,310

6,694

Additional paid-in capital

477,969

486,414

Treasury stock, at cost, 34,356 and 32,763 shares

(804,437

)

(757,478

)

Accumulated other comprehensive income (loss):

Unrealized gain on short-term investments, net of tax

9

6

Cumulative foreign currency translation adjustments

(22,921

)

(13,386

)

Accumulated earnings

648,437

644,806

Total stockholders’ equity

307,038

367,723

Total liabilities and stockholders’ equity

$

810,216

$

859,728

Quarter Ended

March 31,
2015

March 31,
2014

Revenues:

Processing and related services

$

143,833

$

142,358

Software and services

22,633

24,856

Maintenance

19,165

20,814

Total revenues

185,631

188,028

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

Processing and related services

69,260

68,427

Software and services

21,109

25,320

Maintenance

9,897

8,357

Total cost of revenues

100,266

102,104

Other operating expenses:

Research and development

25,729

25,007

Selling, general and administrative

33,442

35,299

Depreciation

3,695

3,486

Restructuring and reorganization charges

606

1,218

Total operating expenses

163,738

167,114

Operating income

21,893

20,914

Other income (expense):

Interest expense

(3,368

)

(2,772

)

Amortization of original issue discount

(1,516

)

(1,404

)

Interest and investment income, net

167

213

Other, net

(465

)

51

Total other

(5,182

)

(3,912

)

Income before income taxes

16,711

17,002

Income tax provision

(7,353

)

(7,311

)

Net income

$

9,358

$

9,691

Weighted-average shares outstanding:

Basic

31,542

32,319

Diluted

33,340

34,035

Earnings per common share:

Basic

$

0.30

$

0.30

Diluted

0.28

0.28

Cash dividends declared per common share

$

0.175

$

0.150

Quarter Ended

March 31,

2015

March 31,

2014

Cash flows from operating activities:

Net income

$

9,358

$

9,691

Adjustments to reconcile net income to net cash provided by (used in) operating activities -

Depreciation

3,695

3,486

Amortization

8,217

8,590

Amortization of original issue discount

1,516

1,404

Loss on short-term investments and other

91

453

Gain on disposition of business operations

—

(222

)

Deferred income taxes

23

2,772

Excess tax benefit of stock-based compensation awards

(1,796

)

(1,974

)

Stock-based employee compensation

5,089

3,783

Subtotal

26,193

27,983

Changes in operating assets and liabilities:

Trade accounts receivable, net

(986

)

(18,029

)

Other current and non-current assets

(1,093

)

(3,448

)

Income taxes payable/receivable

3,338

707

Trade accounts payable and accrued liabilities

(16,140

)

(17,464

)

Deferred revenue

7,624

1,673

Net cash provided by (used in) operating activities

18,936

(8,578)

Cash flows from investing activities:

Purchases of property and equipment

(6,695

)

(4,499

)

Purchases of short-term investments

(10,085

)

(40,531

)

Proceeds from sale/maturity of short-term investments

49,470

50,855

Acquisition of and investments in client contracts

(1,223

)

(1,509

)

Proceeds from the disposition of business operations

—

630

Net cash provided by investing activities

31,467

4,946

Cash flows from financing activities:

Proceeds from issuance of common stock

396

340

Payment of cash dividends

(5,842

)

(5,162

)

Repurchase of common stock

(62,753

)

(6,518

)

Payments on acquired asset financing

(829)

—

Proceeds from long-term debt

150,000

—

Payments on long-term debt

(121,875

)

(3,750

)

Payments of deferred financing costs

(2,692)

—

Excess tax benefit of stock-based compensation awards

1,796

1,974

Net cash used in financing activities

(41,799

)

(13,116

)

Effect of exchange rate fluctuations on cash

(1,039

)

(484

)

Net increase (decrease) in cash and cash equivalents

7,565

(17,232

)

Cash and cash equivalents, beginning of period

81,712

82,686

Cash and cash equivalents, end of period

$

89,277

$

65,454

Supplemental disclosures of cash flow information:

Net cash paid during the period for -

Interest

$

3,441

$

3,322

Income taxes

3,968

3,755

Quarter Ended
March 31,

 2015

Quarter Ended
December 31, 

2014

Quarter Ended
March 31,

 2014

Americas

85

%

83

%

86

%

Europe, Middle East and Africa

11

%

11

%

10

%

Asia Pacific

4

%

6

%

4

%

Total Revenues

100

%

100

%

100

%

Quarter Ended
March 31,

 2015

Quarter Ended
December 31, 

2014

Quarter Ended
March 31,

 2014

Comcast

23

%

22

%

21

%

DISH

15

%

14

%

15

%

Time Warner

11

%

11

%

11

%

•

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.

•

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 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.

Non-GAAP Exclusions

Operating
Income

EPS

Restructuring and reorganization 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

•

Restructuring and reorganization 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, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. 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.

Quarter Ended
March 31, 2015

Quarter Ended
March 31, 2014

Amounts

% of
Revenues

Amounts

% of
Revenues

GAAP operating income

$

21,893

11.8

%

$

20,914

11.1

%

Restructuring and reorganization charges

606

0.3

%

1,218

0.7

%

Stock-based compensation

5,089

2.8

%

3,783

2.0

%

Amortization of acquired intangible assets

3,218

1.7

%

3,990

2.1

%

Non-GAAP operating income

$

30,806

16.6

%

$

29,905

15.9

%

Quarter Ended
March 31, 2015

Quarter Ended
March 31, 2014

Pretax
Amount (1)

EPS (3)

Pretax
Amount (1)

EPS (4)

GAAP income before income taxes

$

16,711

$

0.28

$

17,002

$

0.28

Restructuring and reorganization charges

606

1,218

Stock-based compensation

5,089

3,783

Amortization of acquired intangible assets

3,218

3,990

Amortization of OID

1,516

1,404

Non-GAAP income before income taxes (2)

$

27,140

$

0.51

$

27,397

$

0.52

(1)

These items (on a pretax basis) are calculated in accordance with GAAP, and are reflected as part of the results of operations in the accompanying Unaudited Condensed Consolidated Statements of Income.

(2)

Non-GAAP EPS is calculated by taking the non-GAAP income before income taxes and deducting from this amount non-GAAP income taxes calculated by using the non-GAAP effective income tax rate for the period, and then dividing the result of this calculation by the outstanding diluted shares for the period.

(3)

For the first quarter of 2015, the GAAP effective income tax rate was 44%, the non-GAAP effective income tax rate was approximately 37%, and the outstanding diluted shares were 33.3 million. The difference between the GAAP and the non-GAAP effective income tax rates relates to the timing of the 2015 R&D tax credit legislation.  The anticipated quarterly benefit of the credits is included for non-GAAP purposes, but cannot be reflected for GAAP purposes until the legislation is actually passed.

(4)

For the first quarter of 2014, the GAAP effective income tax rate was 43%, the non-GAAP effective income tax rate was approximately 36%, and the outstanding diluted shares were 34.0 million.  The difference between the GAAP and the non-GAAP effective income tax rates relates to the timing of the 2014 R&D tax credit legislation.  The anticipated quarterly benefit of the credits was included for non-GAAP purposes, but could not be reflected for GAAP purposes until the legislation was actually passed.

Quarter Ended
March 31,

2015

2014

GAAP operating income

$

21,893

$

20,914

Restructuring and reorganization charges

606

1,218

Depreciation

3,695

3,486

Amortization of acquired intangible assets (5)

3,218

3,990

Amortization of other intangible assets (5)

3,634

4,007

Stock-based compensation

5,089

3,783

Adjusted EBITDA

$

38,135

$

37,398

Adjusted EBITDA as a percentage of revenues

21

%

20

%

Quarter Ended
March 31,

2015

2014

Net income

$

9,358

$

9,691

Interest expense (6)

3,368

2,772

Amortization of OID

1,516

1,404

Interest and investment income and other, net

298

(264

)

Income tax provision

7,353

7,311

Depreciation

3,695

3,486

Amortization of acquired intangible assets (5)

3,218

3,990

Amortization of other intangible assets (5)

3,634

4,007

Stock-based compensation

5,089

3,783

Restructuring and reorganization charges

606

1,218

Adjusted EBITDA

$

38,135

$

37,398

Quarter Ended
March 31,

2015

2014

Cash flows from operating activities

$

18,936

$

(8,578

)

Income tax provision

7,353

7,311

Changes in operating assets and liabilities and deferred taxes

7,234

33,789

Interest expense (6)

3,368

2,772

Interest and investment income and other, net

298

(264

)

Restructuring and reorganization charges

606

1,218

Other

340

1,150

Adjusted EBITDA

$

38,135

$

37,398

(5)

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

Quarter Ended
March 31,

2015

2014

Amortization of acquired intangible assets

$

3,218

$

3,990

Amortization of other intangible assets

3,634

4,007

Amortization of deferred financing costs

1,365

593

Total amortization

$

8,217

$

8,590

(6)

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

Quarter Ended
March 31,

2015

2014

Cash flows from operating activities

$

18,936

$

(8,578

)

Purchases of property and equipment

(6,695

)

(4,499

)

Non-GAAP free cash flow

$

12,241

$

(13,077

)

2015
Guidance

GAAP operating income margin

13.0

%

Stock-based compensation (7)

3.0

%

Amortization of acquired intangible assets (8)

1.5

%

Non-GAAP operating income margin (“approximately 17.5%”)

17.5

%

(7)

This represents the pretax impact of stock-based compensation expense of an estimated $22 million on CSG’s operating income margin as a percentage of the midpoint of 2015 revenue guidance.

(8)

This represents the pretax impact of amortization of acquired intangible assets expense of an estimated $12 million on CSG’s operating income margin as a percentage of the midpoint of 2015 revenue guidance.

2015 Guidance Range

Low Range

High Range

Pretax
Amount (9)

EPS (11)

Pretax
Amount (9)

EPS (11)

GAAP income before income taxes

$

80,000

$

1.38

$

84,000

$

1.44

Stock-based compensation

22,000

22,000

Amortization of acquired intangible assets

12,000

12,000

Amortization of OID

6,000

6,000

Non-GAAP income before income taxes (10)

$

120,000

$

2.33

$

124,000

$

2.40

(9)

These items (on a pretax basis) are calculated in accordance with GAAP, and will be reflected as part of the results of operations in CSG’s Unaudited Condensed Consolidated Statements of Income.

(10)

Non-GAAP EPS is calculated by taking the non-GAAP income before income taxes and deducting from this amount non-GAAP income taxes calculated by using the non-GAAP effective income tax rate for the period, and then dividing the result of this calculation by the outstanding diluted shares for the period.

(11)

For 2015, the estimated effective income tax rate for non-GAAP purposes is expected to be approximately 37%, which assumes Congress will approve the 2015 R&D income tax credit legislation prior to the end of 2015. The weighted-average diluted shares outstanding are expected to be 32.5 million.

2015

GAAP operating income

$

99,000

Depreciation

16,500

Amortization of acquired intangible assets

12,000

Amortization of other intangible assets

14,000

Stock-based compensation

22,000

Non-GAAP Adjusted EBITDA

$

163,500

Non-GAAP Adjusted EBITDA as a percentage of revenues

21

%

2015

Net income

$

46,000

Interest expense

11,000

Amortization of OID

6,000

Income tax provision

36,000

Depreciation

16,500

Amortization of acquired of intangible assets

12,000

Amortization of other intangible assets

14,000

Stock-based compensation

22,000

Non-GAAP Adjusted EBITDA

$

163,500

2015

Cash flows from operating activities (midpoint of guidance)

$

112,000

Income tax provision

36,000

Changes in operating assets and liabilities and deferred taxes

4,500

Interest expense

11,000

Non-GAAP Adjusted EBITDA

$

163,500

2015

Cash flows from operating activities (midpoint of guidance)

$

112,000

Purchases of property and equipment

(30,000

)

Non-GAAP free cash flow

$

82,000