PRESS RELEASE

•

Second quarter 2017 financial results:

•

Total revenues were $192.7 million.

•

GAAP operating income was $24.2 million, or 12.6% of total revenues and non-GAAP operating income was $34.7 million, or 18.0% of total revenues.

•

GAAP earnings per diluted share (EPS) was $0.35. Non-GAAP EPS was $0.62.

•

Cash flows from operations were $34.5 million.

•

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

•

During the second quarter, CSG converted over 2.7 million customer accounts onto its cloud solutions.

Quarters Ended June 30,

Six Months Ended June 30,

Percent

Percent

2017

2016

Changed

2017

2016

Changed

Revenues

$

192,713

$

190,252

1

%

$

385,183

$

376,478

2

%

GAAP Results:

Operating Income

$

24,248

$

29,374

(17

%)

$

51,261

$

70,665

(27

%)

Operating Margin

12.6

%

15.4

%

—

13.3

%

18.8

%

—

EPS

$

0.35

$

0.33

6

%

$

0.97

$

0.97

0

%

Non-GAAP Results:

Operating Income

$

34,687

$

42,375

(18

%)

$

69,332

$

86,647

(20

%)

Operating Margin

18.0

%

22.3

%

—

18.0

%

23.0

%

—

EPS

$

0.62

$

0.70

(11

%)

$

1.25

$

1.47

(15

%)

As of

August 2, 2017

Previous

Revenues

$770 - $785 million

$765 - $785 million

GAAP EPS

$1.88 - $1.97

$1.93 - $2.09

Non-GAAP EPS

$2.45 - $2.59

$2.45 - $2.59

GAAP Net Income

$62 - $65 million

$64 - $69 million

Non-GAAP Adjusted EBITDA

$173 - $177 million

$171 - $179 million

Cash Flows From Operating Activities

$105 - $125 million

$105 - $125 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 conversions to CSG’s cloud 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.

June 30,

December 31,

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$

125,111

$

126,351

Short-term investments

119,843

150,147

Total cash, cash equivalents and short-term investments

244,954

276,498

Trade accounts receivable:

Billed, net of allowance of $2,706 and $3,080

197,486

208,930

Unbilled

37,353

30,828

Income taxes receivable

13,517

11,931

Other current assets

37,633

31,751

Total current assets

530,943

559,938

Non-current assets:

Property and equipment, net of depreciation of $129,475 and $122,866

36,343

33,116

Software, net of amortization of $104,252 and $99,316

28,890

30,427

Goodwill

206,634

201,094

Client contracts, net of amortization of $88,406 and $96,723

38,089

40,675

Deferred income taxes

13,455

14,218

Other assets

10,040

12,411

Total non-current assets

333,451

331,941

Total assets

$

864,394

$

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

$

18,750

$

49,426

Client deposits

32,590

33,916

Trade accounts payable

29,982

35,118

Accrued employee compensation

50,314

65,341

Deferred revenue

57,865

45,064

Income taxes payable

423

822

Other current liabilities

18,960

22,342

Total current liabilities

208,884

252,029

Non-current liabilities:

Long-term debt, net of unamortized discounts of $20,652 and $23,007

318,098

326,993

Deferred revenue

7,710

6,694

Income taxes payable

2,441

2,245

Deferred income taxes

100

99

Other non-current liabilities

12,035

12,618

Total non-current liabilities

340,384

348,649

Total liabilities

549,268

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; 33,700 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

421,638

391,209

Treasury stock, at cost; 33,830 and 34,919 shares

(804,650

)

(826,002

)

Accumulated other comprehensive income (loss):

Unrealized loss on short-term investments, net of tax

(12

)

(159

)

Cumulative foreign currency translation adjustments

(35,649

)

(45,213

)

Accumulated earnings

733,110

714,846

Total stockholders' equity

315,126

251,360

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

$

864,394

$

891,879

Quarter Ended

Six Months Ended

June 30, 2017

June 30, 2016

June 30, 2017

June 30, 2016

Revenues:

Cloud and related solutions

$

157,879

$

149,992

$

316,656

$

299,806

Software and services

15,896

21,152

30,954

40,330

Maintenance

18,938

19,108

37,573

36,342

Total revenues

192,713

190,252

385,183

376,478

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

Cloud and related solutions

77,286

70,195

153,338

136,428

Software and services

10,405

11,461

21,679

24,827

Maintenance

9,969

11,127

20,351

21,011

Total cost of revenues

97,660

92,783

195,368

182,266

Other operating expenses:

Research and development

27,939

24,281

54,779

47,907

Selling, general and administrative

36,819

34,980

74,165

69,031

Depreciation

3,316

3,509

6,631

7,025

Restructuring and reorganization charges

2,731

5,325

2,979

(416

)

Total operating expenses

168,465

160,878

333,922

305,813

Operating income

24,248

29,374

51,261

70,665

Other income (expense):

Interest expense

(4,146

)

(4,473

)

(8,452

)

(7,478

)

Amortization of original issue discount

(625

)

(1,136

)

(1,513

)

(2,794

)

Interest and investment income, net

704

523

1,510

991

Loss on repurchase of convertible notes

-

(5,108

)

-

(8,319

)

Other, net

122

(1,895

)

(153

)

(2,686

)

Total other

(3,945

)

(12,089

)

(8,608

)

(20,286

)

Income before income taxes

20,303

17,285

42,653

50,379

Income tax provision

(8,722

)

(6,448

)

(10,835

)

(18,038

)

Net income

$

11,581

$

10,837

$

31,818

$

32,341

Weighted-average shares outstanding:

Basic

32,572

30,942

32,294

30,852

Diluted

32,996

32,811

32,795

33,241

Earnings per common share:

Basic

$

0.36

$

0.35

$

0.99

$

1.05

Diluted

0.35

0.33

0.97

0.97

Six Months Ended

June 30, 2017

June 30, 2016

Cash flows from operating activities:

Net income

$

31,818

$

32,341

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

Depreciation

6,631

7,025

Amortization

14,418

13,040

Amortization of original issue discount

1,513

2,794

Asset impairment

2,147

-

(Gain) loss on short-term investments and other

(37

)

3

Loss on repurchase of convertible notes

-

8,319

Gain on disposition of business operations

-

(6,611

)

Deferred income taxes

1,725

78

Excess tax benefit of stock-based compensation awards

-

(3,440

)

Stock-based compensation

11,644

12,086

Subtotal

69,859

65,635

Changes in operating assets and liabilities:

Trade accounts receivable, net

7,796

5,705

Other current and non-current assets

(4,787

)

(1,866

)

Income taxes payable/receivable

(1,402

)

(7,971

)

Trade accounts payable and accrued liabilities

(19,266

)

(18,758

)

Deferred revenue

12,288

8,020

Net cash provided by operating activities

64,488

50,765

Cash flows from investing activities:

Purchases of property and equipment

(18,738

)

(8,863

)

Purchases of short-term investments

(73,831

)

(102,110

)

Proceeds from sale/maturity of short-term investments

104,291

61,833

Acquisition of and investments in client contracts

(7,526

)

(4,461

)

Proceeds from the disposition of business operations

-

8,850

Net cash provided by (used in) investing activities

4,196

(44,751

)

Cash flows from financing activities:

Proceeds from issuance of common stock

846

715

Payment of cash dividends

(13,713

)

(12,265

)

Repurchase of common stock

(16,482

)

(19,494

)

Proceeds from long-term debt

-

230,000

Payments on long-term debt

(7,500

)

(3,750

)

Repurchase of convertible notes

-

(198,367

)

Settlement of convertible notes

(34,771

)

-

Payments of deferred financing costs

-

(6,744

)

Excess tax benefit of stock-based compensation awards

-

3,440

Net cash used in financing activities

(71,620

)

(6,465

)

Effect of exchange rate fluctuations on cash

1,696

2,937

Net increase (decrease) in cash and cash equivalents

(1,240

)

2,486

Cash and cash equivalents, beginning of period

126,351

132,631

Cash and cash equivalents, end of period

$

125,111

$

135,117

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

$

7,629

$

4,619

Income taxes

10,490

25,923

Quarter Ended

Quarter Ended

Quarter Ended

June 30,

March 31,

June 30,

2017

2017

2016

Americas

85

%

86

%

85

%

Europe, Middle East and Africa

9

%

9

%

9

%

Asia Pacific

6

%

5

%

6

%

Total Revenues

100

%

100

%

100

%

Quarter Ended

Quarter Ended

Quarter Ended

June 30,

March 31,

June 30,

2017

2017

2016

Comcast

27

%

27

%

25

%

Charter/Time Warner (for all periods presented)

21

%

21

%

22

%

DISH

11

%

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 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. 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

June 30, 2017

June 30, 2016

% of

% of

Amounts

Revenues

Amounts

Revenues

GAAP operating income

$

24,248

12.6

%

$

29,374

15.4

%

Restructuring and reorganization charges (1)

2,731

1.4

%

5,325

2.8

%

Stock-based compensation (1)

5,974

3.1

%

5,461

2.9

%

Amortization of acquired intangible assets

1,734

0.9

%

2,215

1.2

%

Non-GAAP operating income

$

34,687

18.0

%

$

42,375

22.3

%

Six Months Ended

Six Months Ended

June 30, 2017

June 30, 2016

% of

% of

Amounts

Revenues

Amounts

Revenues

GAAP operating income

$

51,261

13.3

%

$

70,665

18.8

%

Restructuring and reorganization charges (1)

2,979

0.8

%

(416

)

(0.1

%)

Stock-based compensation (1)

11,644

3.0

%

11,988

3.2

%

Amortization of acquired intangible assets

3,448

0.9

%

4,410

1.1

%

Non-GAAP operating income

$

69,332

18.0

%

$

86,647

23.0

%

(1)

Stock-based compensation included in the tables 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 six months ended June 30, 2016.

Quarter Ended

Quarter Ended

June 30, 2017

June 30, 2016

Amounts

EPS (3)

Amounts

EPS (3)

GAAP net income

$

11,581

$

0.35

$

10,837

$

0.33

GAAP income tax provision (2)

8,722

6,448

GAAP income before income taxes

20,303

17,285

Restructuring and reorganization charges (1)

2,731

5,325

Stock-based compensation (1)

5,974

5,461

Amortization of acquired intangible assets

1,734

2,215

Loss on repurchase of convertible notes

-

5,108

Amortization of OID

625

1,136

Non-GAAP income before income taxes

31,367

36,530

Non-GAAP income tax provision (2)

(10,790

)

(13,516

)

Non-GAAP net income

$

20,577

$

0.62

$

23,014

$

0.70

Six Months Ended

Six Months Ended

June 30, 2017

June 30, 2016

Amounts

EPS (3)

Amounts

EPS (3)

GAAP net income

$

31,818

$

0.97

$

32,341

$

0.97

GAAP income tax provision (2)

10,835

18,038

GAAP income before income taxes

42,653

50,379

Restructuring and reorganization charges (1)

2,979

(416

)

Stock-based compensation (1)

11,644

11,988

Amortization of acquired intangible assets

3,448

4,410

Loss on repurchase of convertible notes

-

8,319

Amortization of OID

1,513

2,794

Non-GAAP income before income taxes

62,237

77,474

Non-GAAP income tax provision (2)

(21,378

)

(28,665

)

Non-GAAP net income

$

40,859

$

1.25

$

48,809

$

1.47

(2)

For the second quarter and six months ended June 30, 2017 the GAAP effective income tax rates were approximately 43% and 25%, respectively, and the non-GAAP effective income tax rates were approximately 34% for both periods.  The difference between the GAAP and non-GAAP effective income tax rates relates primarily to the timing treatment of the net income tax benefit from Comcast’s exercise of their vested stock warrants in January 2017.  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 was recorded as a discrete item, as required by GAAP, in the first quarter 2017 resulting in a GAAP effective income tax rate of 9%.  

For the second quarter and six months ended June 30, 2016 the GAAP effective income tax rates were 37% and 36%, respectively, and the non-GAAP effective income tax rates were approximately 37% for both periods.

(3)

The outstanding diluted shares for the second quarter and six months ended June 30, 2017 were 33.0 million and 32.8 million, respectively, and for the second quarter and six months ended June 30, 2016 were 32.8 million 33.2 million, respectively.

Quarter Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

GAAP net income

$

11,581

$

10,837

$

31,818

$

32,341

GAAP income tax provision

8,722

6,448

10,835

18,038

Interest expense (4)

4,146

4,473

8,452

7,478

Amortization of OID

625

1,136

1,513

2,794

Loss on repurchase of convertible notes

-

5,108

-

8,319

Interest and investment income and other, net

(826

)

1,372

(1,357

)

1,695

GAAP operating income

24,248

29,374

51,261

70,665

Restructuring and reorganization charges (1)

2,731

5,325

2,979

(416

)

Stock-based compensation (1)

5,974

5,461

11,644

11,988

Amortization of acquired intangible assets (5)

1,734

2,215

3,448

4,410

Amortization of other intangible assets (5)

4,656

3,810

9,832

7,535

Depreciation

3,316

3,509

6,631

7,025

Non-GAAP adjusted EBITDA

$

42,659

$

49,694

$

85,795

$

101,207

Non-GAAP adjusted EBITDA as a percentage of revenues

22

%

26

%

22

%

27

%

(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

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Amortization of acquired intangible assets

$

1,734

$

2,215

$

3,448

$

4,410

Amortization of other intangible assets

4,656

3,810

9,832

7,535

Amortization of deferred financing costs

557

600

1,138

1,095

Total amortization

$

6,947

$

6,625

$

14,418

$

13,040

Quarter Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Cash flows from operating activities

$

34,524

$

40,091

$

64,488

$

50,765

Purchases of property and equipment

(9,181

)

(3,601

)

(18,738

)

(8,863

)

Non-GAAP free cash flow

$

25,343

$

36,490

$

45,750

$

41,902

2017

Guidance

GAAP operating margin

14.00

%

Restructuring and reorganization charges (6)

0.50

%

Stock-based compensation (7)

2.50

%

Amortization of acquired intangible assets (8)

1.00

%

Non-GAAP operating margin

18.00

%

(6)

This represents the pretax impact of restructuring and reorganization charges of an estimated $3 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

$

61,900

$

1.88

$

64,700

$

1.97

GAAP income tax provision (9)

28,700

28,900

GAAP income before income taxes

90,600

93,600

Restructuring and reorganization charges

2,900

2,900

Stock-based compensation

21,400

21,400

Amortization of acquired intangible assets

6,800