CSG Systems Reports First Quarter 2009 Results

CSG Systems International, Inc. (Nasdaq: CSGS), a leading provider of customer interaction management and billing solutions, today reported results for the quarter ended March 31, 2009.

Key Highlights:

"We are quite pleased with our solid financial results for the start of 2009, as we increased adoption of our solutions, diversified into new verticals, and delivered new products to the marketplace,” said Peter Kalan, chief executive officer and president of CSG Systems. "We continue to increase our market share within the cable sector with planned conversions of over three million subscribers onto our Advanced Convergent Platform during the next 12 months. These important market share wins validate our product excellence, reliable service, and innovative solutions that earn our clients’ business on a daily basis.”

Results of Operations

Revenues: Total revenues for the first quarter of 2009 were $123.5 million, a 9% increase when compared to $113.6 million for the same period in 2008 and consistent with the fourth quarter of 2008 revenues of $123.6 million. The increase in year-over-year revenues relates primarily to the additional revenues generated from the DataProse and Quaero businesses CSG acquired over the past 12 months.

Operating Income: GAAP operating income for the first quarter of 2009 was $21.6 million, or 17.5% of total revenues, compared to $23.3 million, or 20.5% of total revenues, for the same period last year. Non-GAAP operating income for the first quarter of 2009 was $23.0 million, or 18.6% of total revenues. Non-GAAP operating income excludes $1.4 million of expenses related to CSG’s transition of its data center services from First Data Corporation to Infocrossing ("Data Center Transition Expenses”), which began in the first quarter of 2009.

The reconciliation of GAAP operating income to non-GAAP operating income for the indicated quarters then ended is as follows (in thousands, except percentages):

Earnings per Share: GAAP EPS for the first quarter of 2009 was $0.37, compared to $0.39 for the same period last year. Non-GAAP EPS for the first quarter of 2009 was $0.41, compared to non-GAAP EPS of $0.43 for the first quarter of 2008. The year-over-year decreases in both EPS measures are primarily due to the decrease in operating margin between periods as a result of the impact of the DataProse and Quaero acquisitions on CSG’s overall results of operations.

Non-GAAP EPS excludes the impact of the following items on a tax-affected, per diluted share basis: (i) Data Center Transition Expenses; (ii) amortization of the original issue discount ("OID”) for CSG’s convertible debt securities; and (iii) the gain on the repurchase of CSG’s convertible debt securities.

The reconciliation of GAAP EPS to non-GAAP EPS for the indicated quarters then ended is as follows (in thousands, except per share amounts):

Additional disclosures and reconciliations related to CSG’s use of non-GAAP measures are included in Exhibit 1 at the end of this press release.

Balance Sheet and Cash Flows

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

The sequential decrease in cash and investments in the first quarter of 2009 relates primarily to the repurchase of CSG’s debt and equity securities, and capital expenditures during the quarter, summarized as follows:

• CSG repurchased $15.0 million of its convertible debt at a cost of $13.2 million (weighted-average price of approximately 88% of par). These debt repurchases resulted in a gain of $1.5 million, or $0.03 per diluted share, for the first quarter of 2009. After these debt repurchases, the par value of CSG’s outstanding convertible debt balance as of March 31, 2009 is $185.3 million, down from $200.3 million as of December 31, 2008 and $230.0 million at issuance in 2004.
• CSG repurchased 250,000 shares of its common stock for $3.8 million (a weighted-average price of $15.13 per share) under its stock repurchase program.
• CSG spent $10.0 million on capital expenditures, which includes hardware and related infrastructure items required to setup and replicate the computing environment at the new Infocrossing data center location and investments in new color printer technologies.

The net trade accounts receivable of $130.2 million as of March 31, 2009, increased approximately $10 million from the previous quarter, with the increase primarily due to an $11 million client payment that was received after quarter-end on April 1, 2009. CSG’s days billed outstanding for the first quarter were 58 days, which has been consistent across the last several quarters.

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

Cash flows from operations for the first quarter of 2009 of $16.0 million were negatively impacted by the $11 million client payment that was received after quarter-end on April 1, 2009, as discussed above.

Supplemental Data

The following information is provided to assist readers in further evaluating CSG’s financial performance (in thousands, except per share amounts):

Total customer accounts processed on CSG's systems as of March 31, 2009, were 45.4 million, as compared to 45.3 million customer accounts processed as of December 31, 2008.

Change in Accounting Principle - Impact on Convertible Debt Securities

Effective January 1, 2009, CSG changed the accounting for its convertible debt securities as a result of the adoption of a new accounting pronouncement (FASB Staff Position APB 14-1). Historically, CSG had recorded the entire par value of its convertible debt securities as long-term debt. The new accounting rule required CSG to refer back to the original issue date of June 2004 and record an OID equal to the amount attributable to the convertible equity feature of the securities. The corresponding value assigned to the OID was recorded as equity, net of income taxes. The OID is then required to be amortized to book interest expense subsequent to the issue date through the first put date option of CSG’s convertible debt securities, which is June 2011.

The new accounting rule must be applied retrospectively to all periods presented. As a result, the unaudited condensed consolidated financial statements for the first quarter of 2008 have been restated to reflect the adoption of this new accounting principle. Additional information on the impact of adopting this new accounting pronouncement was included in CSG’s most recent Form 10-K for the year ended December 31, 2008.

Change in Accounting Principle - Impact on Earnings Per Share Calculation

Effective January 1, 2009, CSG changed its earnings per share calculation as a result of the adoption of a new accounting pronouncement (FASB Staff Position EITF 03-6-1). Under the new accounting pronouncement, CSG’s unvested restricted stock awards ("RSAs”) that contain non-forfeitable rights to dividends, whether paid or unpaid, are considered participating securities. Under SFAS 128, undistributed earnings must be allocated between each class of common stock and participating security prior to the calculation of basic and diluted earnings per share attributable to common stockholders.

The new accounting rule must be applied retrospectively to all periods presented. As a result, the unaudited condensed consolidated statement of income for the first quarter of 2008 has been restated to reflect the adoption of this new accounting principle.

2009 Financial Guidance

A summary of CSG’s financial guidance for the full year 2009 is as follows. Overall, CSG’s current expectations are consistent with, or slightly better than, its previous financial guidance.

Non-GAAP EPS shown above is a non-GAAP financial measure and is explained in greater detail and reconciled to the comparable GAAP measure in the attached Exhibit 1.

Conference Call

CSG will host a one-hour conference call on Tuesday, April 28, 2009, at 5 p.m. EDT, to discuss CSG's first quarter results. The call will be carried live and archived on the Internet. A link to the conference call is available at www.csgsystems.com.

Additional Information

For additional information about CSG, please visit CSG’s Web site at www.csgsystems.com. Additional information can be found in the Investor Relations section of the Web site.

About CSG Systems International, Inc.

Headquartered in Englewood, Colo., CSG Systems International, Inc. (NASDAQ: CSGS) is a customer interaction management company that provides software- and services-based solutions that help clients engage and transact with their customers. With a 25-year heritage in providing customer management and billing solutions to North American cable and direct broadcast satellite companies, CSG has broadened its customer interaction management capabilities to proudly serve this client base as well as new, highly competitive industries including financial services, healthcare, utilities and more. Today, CSG's solutions reach more than half of all U.S. households each month and manage over $36 billion in transactions annually on its clients' behalf. For more information, visit our Web site at www.csgsystems.com.

Forward-Looking Statements

This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. These factors include, but are not limited to: 1) the concentration of approximately two-thirds of CSG’s revenues with four clients; as a result, the loss of business from any one of those clients could potentially have a material adverse impact to CSG’s financial results; 2) continued market acceptance of CSG’s Advanced Convergent Platform (ACP) and related products and services; 3) CSG's ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner; 4) CSG's ability to implement new solutions, and migrate or convert clients to our solutions in a timely and effective manner; 5) CSG’s dependency on the North American communications industry; as a result, key market factors such as further industry consolidation, new market entrants that may not be clients of CSG, macroeconomic conditions affecting the credit and equity markets generally, and/or the financial status of CSG clients may affect CSG’s ability to maintain and expand market share; 6) increasing competition in our market from companies of greater size and with broader presence in the communications sector, thus exerting greater influence over client buying decisions; 7) CSG’s ability to successfully integrate and manage acquired businesses, technology or assets to achieve the expected strategic, operating and financial goals established for such acquisitions; 8) CSG’s continued ability to protect its intellectual property rights; and 9) CSG’s dependency on a variety of computing environments and communications networks, as well as risks inherent to transitioning data centers, thus subjecting CSG to the risks of extended interruptions, outages, unauthorized access and corruption of data. This list is not exhaustive and readers are encouraged to review the additional risks and important factors described in CSG's reports on Forms 10-K and 10-Q and other filings made with the SEC.

EXHIBIT 1

CSG SYSTEMS INTERNATIONAL, INC.

DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES

Use of Non-GAAP Financial Measures and Limitations

Non-GAAP financial information is presented as CSG believes this disclosure provides investors and management with supplemental information to measure CSG’s financial and business performance, evaluate trends, and provide other measures of comparability between periods. In addition, CSG uses its non-GAAP financial information for certain internal financial planning and analyses, forecasting and budgeting purposes, and for certain management compensation incentives.

Non-GAAP financial information is not a measure of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. There are limitations with the use of non-GAAP financial measures since they are not based on any comprehensive set of accounting rules or principles. Additionally, the way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate non-GAAP financial measures.

CSG’s calculation of non-GAAP operating income begins with GAAP operating income and adds back the impact of CSG’s transition of its data center services from First Data Corporation to Infocrossing ("Data Center Transition Expenses”). Non-GAAP operating income as a percentage of total revenues (also referred to as "non-GAAP operating income margin”), is calculated by taking non-GAAP operating income and dividing it by total revenues for the respective period.

CSG’s calculation of non-GAAP earnings per share ("EPS”) begins with GAAP EPS and then excludes the following items on a tax-affected, per diluted share basis: (i) CSG’s Data Center Transition Expenses; (ii) amortization of the original issue discount ("OID”) for CSG’s convertible debt securities; and (iii) the gain on the repurchase of CSG’s convertible debt securities. CSG believes this presentation provides meaningful supplemental information regarding CSG’s performance, and these items are included in CSG’s determination of non-GAAP financial information for the following reasons:

• The Data Center Transition Expenses and any gains on the repurchase of CSG’s convertible debt securities are unique and infrequent in occurrence for CSG, and therefore may not be 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 operating results with historical and future periods.
• The amortization of the convertible debt securities OID is additional interest expense as a result of the adoption of a new accounting pronouncement effective January 1, 2009. The exclusion of these costs in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current interest expense with historical periods prior to the adoption of this new accounting pronouncement. In addition, 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.

Reconciliation of Non-GAAP Financial Measures – Historical Results

The reconciliation of GAAP operating income to non-GAAP operating income for the indicated quarters then ended is as follows (in thousands, except percentages):

Non-GAAP Financial Measures – 2009 Financial Guidance

The reconciliation of GAAP operating income margin to non-GAAP operating income margin as included in CSG’s 2009 full year financial guidance is as follows (in thousands, except percentages):