PRESS RELEASE

•

First quarter 2017 financial results:

•

Total revenues were $192.5 million.

•

GAAP operating income was $27.0 million, or 14.0% of total revenues and non-GAAP operating income was $34.6 million, or 18.0% of total revenues.

•

GAAP earnings per diluted share (EPS) was $0.62. Non-GAAP EPS was $0.62.

•

Cash flows from operations were $30.0 million.

•

CSG declared its quarterly cash dividend of $0.1975 per share of common stock, or a total of approximately $7 million, to shareholders.

Quarter Ended March 31,

Percent

2017

2016

Changed

Revenues

$

192,470

$

186,226

3

%

GAAP Results:

Operating Income

$

27,013

$

41,291

(35

%)

Operating Margin

14.0

%

22.2

%

—

EPS

$

0.62

$

0.64

(3

%)

Non-GAAP Results:

Operating Income

$

34,645

$

44,272

(22

%)

Operating Margin

18.0

%

23.8

%

—

EPS

$

0.62

$

0.77

(19

%)

As of

May 3, 2017

Previous

Revenues

$765 - $785 million

$760 - $785 million

GAAP EPS

$1.93 - $2.09

$1.85 - $2.03

Non-GAAP EPS

$2.45 - $2.59

$2.33 - $2.49

GAAP Net Income

$64 - $69 million

$61 - $67 million

Non-GAAP Adjusted EBITDA

$171 - $179 million

$170 - $179 million

Cash Flows From Operating Activities

$105 - $125 million

$100 - $120 million

•

CSG derives approximately sixty 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 its 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,

December 31,

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$

107,422

$

126,351

Short-term investments

130,450

150,147

Total cash, cash equivalents and short-term investments

237,872

276,498

Trade accounts receivable:

Billed, net of allowance of $2,824 and $3,080

195,311

208,930

Unbilled

40,191

30,828

Income taxes receivable

17,874

11,931

Other current assets

29,270

31,751

Total current assets

520,518

559,938

Non-current assets:

Property and equipment, net of depreciation of $126,230 and $122,866

36,418

33,116

Software, net of amortization of $101,689 and $99,316

29,451

30,427

Goodwill

202,750

201,094

Client contracts, net of amortization of $89,935 and $96,723

38,566

40,675

Deferred income taxes

12,328

14,218

Other assets

12,371

12,411

Total non-current assets

331,884

331,941

Total assets

$

852,402

$

891,879

LIABILITIES, CURRENT PORTION OF LONG-TERM DEBT CONVERSION OBLIGATION AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt, net of unamortized discounts of zero and $296

$

16,875

$

49,426

Client deposits

33,006

33,916

Trade accounts payable

31,803

35,118

Accrued employee compensation

48,716

65,341

Deferred revenue

50,435

45,064

Income taxes payable

547

822

Other current liabilities

18,897

22,342

Total current liabilities

200,279

252,029

Non-current liabilities:

Long-term debt, net of unamortized discounts of $21,834 and $23,007

322,541

326,993

Deferred revenue

7,595

6,694

Income taxes payable

2,405

2,245

Deferred income taxes

3,643

99

Other non-current liabilities

12,208

12,618

Total non-current liabilities

348,392

348,649

Total liabilities

548,671

600,678

Current portion of long-term debt conversion obligation

-

39,841

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; 33,825 and 32,261 shares outstanding

689

672

Common stock warrants; zero and 1,426 warrants vested; 1,425 and 2,851 issued

-

16,007

Additional paid-in capital

415,450

391,209

Treasury stock, at cost; 33,702 and 34,919 shares

(799,605

)

(826,002

)

Accumulated other comprehensive income (loss):

Unrealized loss on short-term investments, net of tax

(115

)

(159

)

Cumulative foreign currency translation adjustments

(40,874

)

(45,213

)

Accumulated earnings

728,186

714,846

Total stockholders' equity

303,731

251,360

Total liabilities, current portion of long-term debt conversion obligation and stockholders' equity

$

852,402

$

891,879

Quarter Ended

March 31, 2017

March 31, 2016

Revenues:

Cloud and related solutions

$

158,777

$

149,814

Software and services

15,058

19,178

Maintenance

18,635

17,234

Total revenues

192,470

186,226

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

Cloud and related solutions

76,052

66,233

Software and services

11,274

13,366

Maintenance

10,382

9,884

Total cost of revenues

97,708

89,483

Other operating expenses:

Research and development

26,840

23,626

Selling, general and administrative

37,346

34,051

Depreciation

3,315

3,516

Restructuring and reorganization charges

248

(5,741

)

Total operating expenses

165,457

144,935

Operating income

27,013

41,291

Other income (expense):

Interest expense

(4,306

)

(3,005

)

Amortization of original issue discount

(888

)

(1,658

)

Interest and investment income, net

806

468

Loss on repurchase of convertible notes

-

(3,211

)

Other, net

(275

)

(791

)

Total other

(4,663

)

(8,197

)

Income before income taxes

22,350

33,094

Income tax provision

(2,113

)

(11,590

)

Net income

$

20,237

$

21,504

Weighted-average shares outstanding:

Basic

32,016

30,762

Diluted

32,594

33,672

Earnings per common share:

Basic

$

0.63

$

0.70

Diluted

0.62

0.64

Quarter Ended

March 31, 2017

March 31, 2016

Cash flows from operating activities:

Net income

$

20,237

$

21,504

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

Depreciation

3,315

3,516

Amortization

7,471

6,415

Amortization of original issue discount

888

1,658

(Gain) loss on short-term investments and other

(57

)

11

Loss on repurchase of convertible notes

-

3,211

Gain on disposition of business operations

-

(6,614

)

Deferred income taxes

5,971

3,923

Excess tax benefit of stock-based compensation awards

-

(3,375

)

Stock-based compensation

5,670

6,506

Subtotal

43,495

36,755

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

Trade accounts receivable, net

5,650

35

Other current and non-current assets

2,793

1,597

Income taxes payable/receivable

(5,692

)

992

Trade accounts payable and accrued liabilities

(21,943

)

(32,490

)

Deferred revenue

5,661

3,785

Net cash provided by operating activities

29,964

10,674

Cash flows from investing activities:

Purchases of property and equipment

(9,557

)

(5,262

)

Purchases of short-term investments

(17,983

)

(14,100

)

Proceeds from sale/maturity of short-term investments

37,782

30,067

Acquisition of and investments in client contracts

(4,363

)

(1,520

)

Proceeds from the disposition of business operations

-

8,850

Net cash provided by investing activities

5,879

18,035

Cash flows from financing activities:

Proceeds from issuance of common stock

385

356

Payment of cash dividends

(7,033

)

(6,529

)

Repurchase of common stock

(11,224

)

(18,990

)

Proceeds from long-term debt

-

230,000

Payments on long-term debt

(3,750

)

(1,875

)

Repurchase of convertible notes

-

(72,619

)

Settlement of convertible notes

(34,771

)

-

Payments of deferred financing costs

-

(6,655

)

Excess tax benefit of stock-based compensation awards

-

3,375

Net cash provided by (used in) financing activities

(56,393

)

127,063

Effect of exchange rate fluctuations on cash

1,621

1,330

Net increase (decrease) in cash and cash equivalents

(18,929

)

157,102

Cash and cash equivalents, beginning of period

126,351

132,631

Cash and cash equivalents, end of period

$

107,422

$

289,733

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

$

6,539

$

3,339

Income taxes

1,835

6,680

Quarter Ended

Quarter Ended

Quarter Ended

March 31,

December 31,

March 31,

2017

2016

2016

Americas

86

%

85

%

87

%

Europe, Middle East and Africa

9

%

10

%

8

%

Asia Pacific

5

%

5

%

5

%

Total Revenues

100

%

100

%

100

%

Quarter Ended

Quarter Ended

Quarter Ended

March 31,

December 31,

March 31,

2017

2016

2016

Comcast

27

%

26

%

25

%

Charter/Time Warner (for all periods presented)

21

%

20

%

21

%

DISH

12

%

12

%

14

%

•

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

Gain (loss) on repurchase of convertible notes

—

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 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 repurchase of CSG’s convertible notes are not considered reflective of CSG’s recurring core business operating results.  Any resulting gain or loss on the repurchase of CSG’s convertible notes is 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

Quarter Ended

March 31, 2017

March 31, 2016

% of

% of

Amounts

Revenues

Amounts

Revenues

GAAP operating income

$

27,013

14.0

%

$

41,291

22.2

%

Restructuring and reorganization charges (1)

248

0.1

%

(5,741

)

(3.1

%)

Stock-based compensation (1)

5,670

3.0

%

6,527

3.5

%

Amortization of acquired intangible assets

1,714

0.9

%

2,195

1.2

%

Non-GAAP operating income

$

34,645

18.0

%

$

44,272

23.8

%

(1)

Stock-based compensation included in the table above and following excludes amounts that have been recorded in restructuring and reorganization charges.  In addition, restructuring and reorganization charges include the impact of the gain on disposition of business operations for the first quarter of 2016.

Quarter Ended

Quarter Ended

March 31, 2017

March 31, 2016

Amounts

EPS (3)

Amounts

EPS (3)

GAAP net income

$

20,237

$

0.62

$

21,504

$

0.64

GAAP income tax provision (2)

2,113

11,590

GAAP income before income taxes

22,350

33,094

Restructuring and reorganization charges (1)

248

(5,741

)

Stock-based compensation (1)

5,670

6,527

Amortization of acquired intangible assets

1,714

2,195

Loss on repurchase of convertible notes

-

3,211

Amortization of OID

888

1,658

Non-GAAP income before income taxes

30,870

40,944

Non-GAAP income tax provision (2)

(10,588

)

(15,149

)

Non-GAAP net income

$

20,282

$

0.62

$

25,795

$

0.77

(2)

For the quarters ended March 31, 2017 and 2016 the GAAP effective income tax rates were approximately 9% and 35%, respectively, and the non-GAAP effective income tax rates were approximately 34% and 37%, respectively.  The difference between the GAAP and non-GAAP effective income tax for the first quarter of 2017 relates primarily to the timing treatment of the net income tax benefit from Comcast’s exercise of their vested stock warrants in January 2017, as previously discussed above.  The net income tax benefit from this item is spread ratably across 2017 in the non-GAAP effective income tax rate; however, the entire amount of the benefit is recorded as a discrete item in the first quarter 2017 GAAP effective income tax rate, as required by GAAP.  

(3)

The outstanding diluted shares for the quarters ended March 31, 2017 and 2016 were 32.6 million 33.7 million, respectively, with the decrease primarily related to our refinancing activities for our 2010 Convertible Notes.

Quarter Ended

March 31,

2017

2016

GAAP net income

$

20,237

$

21,504

GAAP income tax provision

2,113

11,590

Interest expense (4)

4,306

3,005

Amortization of OID

888

1,658

Loss on repurchase of convertible notes

-

3,211

Interest and investment income and other, net

(531

)

323

GAAP operating income

27,013

41,291

Restructuring and reorganization charges (1)

248

(5,741

)

Stock-based compensation (1)

5,670

6,527

Amortization of acquired intangible assets (5)

1,714

2,195

Amortization of other intangible assets (5)

5,176

3,725

Depreciation

3,315

3,516

Non-GAAP adjusted EBITDA

$

43,136

$

51,513

Non-GAAP adjusted EBITDA as a percentage of revenues

22

%

28

%

(4)

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

(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,

2017

2016

Amortization of acquired intangible assets

$

1,714

$

2,195

Amortization of other intangible assets

5,176

3,725

Amortization of deferred financing costs

581

495

Total amortization

$

7,471

$

6,415

Quarter Ended

March 31,

2017

2016

Cash flows from operating activities

$

29,964

$

10,674

Purchases of property and equipment

(9,557

)

(5,262

)

Non-GAAP free cash flow

$

20,407

$

5,412

2017

Guidance

GAAP operating margin

14.50

%

Restructuring and reorganization charges (6)

0.00

%

Stock-based compensation (7)

2.75

%

Amortization of acquired intangible assets (8)

1.00

%

Non-GAAP operating margin (“approximately 18%”)

18.25

%

(6)

This represents the pretax impact of restructuring and reorganization charges of an estimated $0.1 million on CSG’s operating income margin as a percentage of the midpoint of 2017 revenue guidance.

(7)

This represents the pretax impact of stock-based compensation expense of an estimated $21 million on CSG’s operating income margin as a percentage of the midpoint of 2017 revenue guidance.

(8)

This represents the pretax impact of amortization of acquired intangible assets expense of an estimated $7 million on CSG’s operating income margin as a percentage of the midpoint of 2017 revenue guidance.

2017 Guidance Range

Low Range

High Range

Amounts

EPS (10)

Amounts

EPS (10)

GAAP net income

$

63,800

$

1.93

$

69,100

$

2.09

GAAP income tax provision (9)

28,400

30,400

GAAP income before income taxes

92,200

99,500

Restructuring and reorganization charges

100

100

Stock-based compensation

21,400

21,400

Amortization of acquired intangible assets

6,800

6,800

Amortization of OID

2,800

2,800

Non-GAAP income before income taxes

123,300

130,600

Non-GAAP income tax provision (9)

(42,200

)

(44,800

)

Non-GAAP net income

$

81,100

$

2.45

$

85,800

$

2.59

(9)

For 2017, the estimated effective income tax rate for GAAP and non-GAAP purposes are expected to be approximately 31% and 34%, respectively.

(10)

The weighted-average diluted shares outstanding are expected to be 33.1 million.

2017

GAAP net income

$

66,500

GAAP income tax provision

29,400

Interest expense

16,000

Amortization of OID

2,800

Interest and investment income and other, net

(2,000

)

GAAP operating income

112,700

Restructuring and reorganization charges

100

Stock-based compensation

21,400

Amortization of acquired intangible assets

6,800

Amortization of other intangible assets

20,000

Depreciation

14,000

Non-GAAP adjusted EBITDA

$

175,000

Non-GAAP adjusted EBITDA as a percentage of revenues

23

%

2017

Cash flows from operating activities

$

115,000

Purchases of property and equipment

(22,500

)

Non-GAAP free cash flow

$

92,500