•

Fourth quarter 2019 financial results:

•

Total revenues were $254.7 million and total non-GAAP adjusted revenues were $236.9 million.

•

GAAP operating income was $30.3 million, or 11.9% of total revenues, and non-GAAP operating income was $41.5 million, or 17.5% of non-GAAP adjusted revenues.

•

GAAP earnings per diluted share (EPS) was $0.70 and non-GAAP EPS was $0.98.

•

Cash flows from operations were $43.5 million, with non-GAAP free cash flow of $33.9 million.

•

Full year 2019 financial results:

•

Total revenues grew 14% year-over-year to a record high of $996.8 million and non-GAAP adjusted revenues were $927.7 million.

•

GAAP operating income was $126.1 million, or 12.7% of total revenues, and non-GAAP operating income was $165.7 million, or 17.9% of non-GAAP adjusted revenues.

•

GAAP EPS was $2.55 and non-GAAP EPS was $3.53.

•

Cash flows from operations were $151.1 million, with non-GAAP free cash flow of $113.8 million.

•

CSG declared its quarterly cash dividend of $0.2225 per share of common stock, or a total of approximately $7 million, to shareholders, bringing total 2019 dividends to approximately $29 million.

•

In February 2020, CSG’s Board of Directors approved an approximately 6% increase in CSG’s cash dividend, with quarterly payments of $0.235 per share of common stock to be paid in March 2020.

•

During the quarter and full year 2019, CSG repurchased under its stock repurchase program, approximately 91,000 shares of its common stock for approximately $5 million and approximately 576,000 shares of its common stock for approximately $26 million, respectively.

•

In December 2019, CSG entered into a five-year extension with Comcast, extending its partnership through December 31, 2025, as the provider of billing services for Comcast’s residential broadband, video, home, and voice customers.  

•

On January 2, 2020, CSG acquired certain assets of Tekzenit, Inc., based in Dallas, Texas, that provides strategy, design engineering, and technology enablement to improve client experiences across all communication channels, for approximately $10 million.

Quarter Ended December 31,

Year Ended December 31,

Percent

Percent

2019

2018

Changed

2019

2018

Changed

GAAP Results:

Revenues

$

254,747

$

247,267

3

%

$

996,810

$

875,059

14

%

Operating Income

30,258

29,425

3

%

126,109

104,932

20

%

Operating Margin Percentage

11.9

%

11.9

%

12.7

%

12.0

%

EPS

$

0.70

$

0.64

9

%

$

2.55

$

2.01

27

%

Non-GAAP Results:

Adjusted Revenues

$

236,907

$

231,665

2

%

$

927,696

$

859,457

8

%

Operating Income

41,540

41,400

0

%

165,702

147,855

12

%

Adjusted Operating Margin Percentage

17.5

%

17.9

%

17.9

%

17.2

%

EPS

$

0.98

$

0.95

3

%

$

3.53

$

3.06

15

%

As of                          February 5, 2020

Previous

GAAP Measures:

Revenues

$990 - $1,030 million

$980 - $1,020 million

Operating Margin Percentage

No change

11.5% - 12.5%

EPS

$2.13 - $2.46

N/A

Cash Flows from Operating Activities

$130 - $155 million

N/A

Non-GAAP Measures:

Adjusted Revenues

$917 - $950 million

$907 - $940 million

Adjusted Operating Margin Percentage

No change

16.0% - 17.0%

EPS

$2.96 - $3.29

N/A

•

CSG derives approximately forty percent of its revenues from its two 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 its dependency on software solution sales, which are subject to greater volatility;

•

Increasing competition in CSG’s market from companies of greater size and with broader presence;

•

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.

December 31,

December 31,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$

156,548

$

139,277

Short-term investments

26,109

23,603

Total cash, cash equivalents and short-term investments

182,657

162,880

Settlement assets

169,327

124,627

Trade accounts receivable:

Billed, net of allowance of $3,735 and $3,115

244,058

235,827

Unbilled

33,450

37,227

Income taxes receivable

4,297

6,720

Other current assets

35,293

32,286

Total current assets

669,082

599,567

Non-current assets:

Property and equipment, net of depreciation of $98,029 and $93,278

84,429

81,813

Operating lease right-of-use assets

94,847

-

Software, net of amortization of $125,437 and $119,381

32,526

36,400

Goodwill

259,164

255,816

Acquired client contracts, net of amortization of $93,767 and $82,692

55,105

65,456

Client contract costs, net of amortization of $31,526 and $43,051

50,746

37,289

Deferred income taxes

9,392

11,087

Other assets

27,739

26,934

Total non-current assets

613,948

514,795

Total assets

$

1,283,030

$

1,114,362

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

10,313

$

7,500

Operating lease liabilities

22,442

-

Client deposits

38,687

36,889

Trade accounts payable

32,704

45,386

Accrued employee compensation

77,527

61,107

Settlement liabilities

168,342

123,613

Deferred revenue

45,094

40,236

Income taxes payable

2,806

218

Other current liabilities

20,778

35,442

Total current liabilities

418,693

350,391

Non-current liabilities:

Long-term debt, net of unamortized discounts of $10,053 and $14,549

346,509

352,326

Operating lease liabilities

78,936

-

Deferred revenue

18,552

17,527

Income taxes payable

2,543

2,284

Deferred income taxes

6,376

8,205

Other non-current liabilities

14,759

22,605

Total non-current liabilities

467,675

402,947

Total liabilities

886,368

753,338

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; 32,891 and 33,158 shares outstanding

696

693

Common stock warrants; zero and 439 warrants vested; 950 and 1,425 warrants issued

-

9,082

Additional paid-in capital

454,663

441,417

Treasury stock, at cost; 35,356 and 34,779 shares

(867,817

)

(842,360

)

Accumulated other comprehensive income (loss):

Unrealized gains on short-term investments, net of tax

16

2

Cumulative foreign currency translation adjustments

(39,519

)

(42,937

)

Accumulated earnings

848,623

795,127

Total stockholders' equity

396,662

361,024

Total liabilities and stockholders' equity

$

1,283,030

$

1,114,362

Quarter Ended

Year Ended

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Revenues

$

254,747

$

247,267

$

996,810

$

875,059

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

131,871

130,180

525,122

449,820

Other operating expenses:

Research and development

32,207

32,225

127,994

124,034

Selling, general and administrative

53,345

48,793

191,329

169,308

Depreciation

5,503

5,011

21,422

18,304

Restructuring and reorganization charges

1,563

1,633

4,834

8,661

Total operating expenses

224,489

217,842

870,701

770,127

Operating income

30,258

29,425

126,109

104,932

Other income (expense):

Interest expense

(4,300

)

(4,465

)

(17,748

)

(17,667

)

Amortization of original issue discount

(720

)

(680

)

(2,819

)

(2,664

)

Interest and investment income, net

457

390

1,785

2,646

Loss on extinguishment of debt

-

-

-

(810

)

Other, net

(1,481

)

897

(1,604

)

550

Total other

(6,044

)

(3,858

)

(20,386

)

(17,945

)

Income before income taxes

24,214

25,567

105,723

86,987

Income tax provision

(1,633

)

(4,669

)

(22,953

)

(20,857

)

Net income

$

22,581

$

20,898

$

82,770

$

66,130

Weighted-average shares outstanding:

Basic

31,967

32,329

32,051

32,488

Diluted

32,443

32,602

32,465

32,855

Earnings per common share:

Basic

$

0.71

$

0.65

$

2.58

$

2.04

Diluted

0.70

0.64

2.55

2.01

Year Ended

December 31, 2019

December 31, 2018

Cash flows from operating activities:

Net income

$

82,770

$

66,130

Adjustments to reconcile net income to net cash provided by operating activities-

Depreciation

21,422

18,304

Amortization

45,700

44,328

Amortization of original issue discount

2,819

2,664

Asset impairment

438

1,851

Gain on short-term investments and other

(364

)

(101

)

Loss on extinguishment of debt

-

810

Deferred income taxes

(77

)

4,913

Stock-based compensation

19,919

19,358

Subtotal

172,627

158,257

Changes in operating assets and liabilities, net of acquired amounts:

Trade accounts receivable, net

(4,015

)

(138

)

Other current and non-current assets and liabilities

(17,727

)

(23,179

)

Income taxes payable/receivable

4,771

5,055

Trade accounts payable and accrued liabilities

(10,317

)

(7,146

)

Deferred revenue

5,737

10,492

Net cash provided by operating activities

151,076

143,341

Cash flows from investing activities:

Purchases of software, property and equipment

(37,319

)

(57,104

)

Purchases of short-term investments

(54,258

)

(75,022

)

Proceeds from sale/maturity of short-term investments

52,135

190,778

Acquisition of and investments in business, net of cash acquired

(17,194

)

(144,791

)

Net cash used in investing activities

(56,636

)

(86,139

)

Cash flows from financing activities:

Proceeds from issuance of common stock

2,227

2,311

Payment of cash dividends

(29,126

)

(27,979

)

Repurchase of common stock

(30,918

)

(34,726

)

Exercise of common stock warrants

(12,911

)

-

Proceeds from long-term debt

-

150,000

Payments on long-term debt

(7,500

)

(125,625

)

Payments of deferred financing costs

-

(1,490

)

Net cash used in financing activities

(78,228

)

(37,509

)

Effect of exchange rate fluctuations on cash

1,059

(2,659

)

Net increase in cash and cash equivalents

17,271

17,034

Cash and cash equivalents, beginning of period

139,277

122,243

Cash and cash equivalents, end of period

$

156,548

$

139,277

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

$

16,064

$

15,857

Income taxes

18,358

10,426

Quarter Ended

Quarter Ended

Quarter Ended

December 31,

September 30,

December 31,

2019

2019

2018

Cloud and related solutions

$

230,044

$

224,347

$

214,987

Software and services

12,757

14,406

18,528

Maintenance

11,946

12,661

13,752

Total revenues

$

254,747

$

251,414

$

247,267

Year Ended

Year Ended

December 31,

December 31,

2019

2018

Cloud and related solutions

$

896,164

$

766,377

Software and services

52,364

58,101

Maintenance

48,282

50,581

Total revenues

$

996,810

$

875,059

Quarter Ended

Quarter Ended

Quarter Ended

December 31,

September 30,

December 31,

2019

2019

2018

Comcast

24

%

23

%

22

%

Charter

20

%

20

%

18

%

Year Ended

Year Ended

December 31,

December 31,

2019

2018

Comcast

23

%

25

%

Charter

20

%

20

%

Quarter Ended

Quarter Ended

Quarter Ended

December 31,

September 30,

December 31,

2019

2019

2018

Americas

88

%

87

%

85

%

Europe, Middle East and Africa

8

%

9

%

10

%

Asia Pacific

4

%

4

%

5

%

Total revenues

100

%

100

%

100

%

Year Ended

Year Ended

December 31,

December 31,

2019

2018

Americas

87

%

85

%

Europe, Middle East and Africa

9

%

10

%

Asia Pacific

4

%

5

%

Total revenues

100

%

100

%

•

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

Adjusted Revenues

Operating Income

Adjusted Operating Margin Percentage

EPS

Transaction fees

X

—

X

—

Restructuring and reorganization charges

—

X

X

X

Acquisition-related expenses:

Amortization of acquired intangible assets

—

X

X

X

Earn-out compensation

—

X

X

X

Transaction-related costs

—

X

X

X

Stock-based compensation

—

X

X

X

Amortization of original issue discount (“OID”)

—

—

—

X

Gain (loss) on extinguishment of debt

—

—

—

X

Unusual income tax matters

—

—

—

X

•

Transaction fees are primarily comprised of interchange and other payment-related fees paid, in conjunction with the delivery of service to clients under CSG’s payment services contracts, to third-party payment processors and financial institutions by CSG.  Because CSG controls the integrated service provided under its payment services client contracts, these transaction fees are presented gross, and not netted against revenues; however, other payments companies who do not provide and/or control an integrated service present their revenues net of transaction fees.  The exclusion of these fees in calculating CSG’s non-GAAP adjusted revenues provides management and investors an additional means to use to compare CSG’s current revenues with historical and future periods, as well as with other payments companies.

•

Restructuring and reorganization charges are 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 expenses include amortization of acquired intangible assets, earn-out compensation, and transaction-related costs.  Transaction-related costs, which typically include expenses related to legal, accounting, and other professional services, are direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSG’s recurring core business operating results.  The total amount of acquisition-related expenses can vary significantly between periods based on the number and size of acquisition activities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-out compensation.  In addition, the timing of these expenses may not directly correlate with underlying performance of the CSG’s operations.  Therefore, the exclusion of

acquisition-related expenses 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.  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.

•

The convertible notes 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 notes for cash flow, liquidity, and debt service purposes.

•

Gains and losses related to the extinguishment of debt are a result of the refinancing of CSG’s credit agreement and/or repurchase of CSG’s convertible notes.  These activities are not considered reflective of CSG’s recurring core business operating results.  Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of this item allows investors to further evaluate the cash impact of these repurchases for cash flow and liquidity purposes.  In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods.  

•

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

December 31,

Year Ended

December 31,

2019

2018

2019

2018

GAAP revenues

$

254,747

$

247,267

$

996,810

$

875,059

Less:  Transaction fees

(17,840

)

(15,602

)

(69,114

)

(15,602

)

Non-GAAP adjusted revenues (1)

$

236,907

$

231,665

$

927,696

$

859,457

(1)

Non-GAAP adjusted revenues are defined as GAAP revenues less transaction fees.  Transaction fees are primarily comprised of interchange and other payment-related fees paid, in conjunction with the delivery of service to clients under CSG’s payment services contracts, to third-party payment processors and financial institutions by CSG.  Because CSG controls the integrated service provided under its payment services client contracts, these transaction fees are presented gross, and not netted against revenues; however, other payments companies who do not provide and/or control an integrated service present their revenues net of transaction fees.

Quarter Ended December 31,

Year Ended

December 31,

2019

2018

2019

2018

GAAP operating income

$

30,258

$

29,425

$

126,109

$

104,932

Restructuring and reorganization charges (2)

1,563

1,633

4,834

8,661

Acquisition-related expenses:

Amortization of acquired intangible assets

3,095

3,326

12,603

9,699

Earn-out compensation

-

1,260

1,260

1,260

Transaction-related costs

-

1,034

-

3,653

Stock-based compensation (2)

6,624

4,722

20,896

19,650

Non-GAAP operating income

$

41,540

$

41,400

$

165,702

$

147,855

Non-GAAP adjusted revenues (1)

$

236,907

$

231,665

$

927,696

$

859,457

Non-GAAP adjusted operating margin percentage

17.5

%

17.9

%

17.9

%

17.2

%

(2)

Stock-based compensation included in the tables above and following excludes amounts that have been recorded in restructuring and reorganization charges.  

Quarter Ended

Quarter Ended

December 31, 2019

December 31, 2018

Amounts

EPS (4)

Amounts

EPS (4)

GAAP net income

$

22,581

$

0.70

$

20,898

$

0.64

GAAP income tax provision (3)

1,633

4,669

GAAP income before income taxes

24,214

25,567

Restructuring and reorganization charges (2)

1,563

1,633

Acquisition-related costs:

Amortization of acquired intangible assets

3,095

3,326

Earn-out compensation

-

1,260

Transaction-related costs

-

1,034

Stock-based compensation (2)

6,624

4,722

Amortization of OID

720

680

Non-GAAP income before income taxes

36,216

38,222

Non-GAAP income tax provision (3)

(4,306

)

(7,247

)

Non-GAAP net income

$

31,910

$

0.98

$

30,975

$

0.95

Year Ended

Year Ended

December 31, 2019

December 31, 2018

Amounts

EPS (4)

Amounts

EPS (4)

GAAP net income

$

82,770

$

2.55

$

66,130

$

2.01

GAAP income tax provision (3)

22,953

20,857

GAAP income before income taxes

105,723

86,987

Restructuring and reorganization charges (2)

4,834

8,661

Acquisition-related expenses:

Amortization of acquired intangible assets

12,603

9,699

Earn-out compensation

1,260

1,260

Transaction-related costs

-

3,653

Stock-based compensation (2)

20,896

19,650

Loss on extinguishment of debt

-

810

Amortization of OID

2,819

2,664

Non-GAAP income before income taxes

148,135

133,384

Non-GAAP income tax provision (3)

(33,404

)

(32,786

)

Non-GAAP net income

$

114,731

$

3.53

$

100,598

$

3.06

(3)

For the fourth quarter and year ended December 31, 2019 the GAAP effective income tax rates were approximately 7% and 22%, respectively, and the non-GAAP effective income tax rates were approximately 12% and 23%, respectively.  

(4)

The outstanding diluted shares for the fourth quarter and year ended December 31, 2019 were 32.4 million and 32.5 million, respectively, and for the fourth quarter and year ended December 31, 2018 were 32.6 million and 32.9 million, respectively.

Quarter Ended

Year Ended

December 31,

December 31,

2019

2018

2019

2018

GAAP net income

$

22,581

$

20,898

$

82,770

$

66,130

GAAP income tax provision (3)

1,633

4,669

22,953

20,857

Interest expense (5)

4,300

4,465

17,748

17,667

Amortization of OID

720

680

2,819

2,664

Loss on extinguishment of debt

-

-

-

810

Interest and investment income and other, net

1,024

(1,287

)

(181

)

(3,196

)

GAAP operating income

30,258

29,425

126,109

104,932

Restructuring and reorganization charges (2)

1,563

1,633

4,834

8,661

Acquisition-related expenses:

Amortization of acquired intangible assets (6)

3,095

3,326

12,603

9,699

Earn-out compensation

-

1,260

1,260

1,260

Transaction-related costs

-

1,034

-

3,653

Stock-based compensation (2)

6,624

4,722

20,896

19,650

Amortization of other intangible assets (6)

2,897

2,521

10,641

9,517

Amortization of client contract costs (6)

4,705

6,096

20,779

23,381

Depreciation

5,503

5,011

21,422