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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                      

Commission file number 0-27512

 

CSG SYSTEMS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-0783182

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

 

6175 S. Willow Drive, 10th Floor

Greenwood Village, Colorado 80111

(Address of principal executive offices, including zip code)

(303) 200-2000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

 

CSGS

 

NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes              No     

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes              No     

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 2, 2020, there were 32,945,906 shares of the registrant’s common stock outstanding.

 

 

 


CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q for the Quarter Ended September 30, 2020

INDEX

 

 

 

Page No.

 

 

 

Part I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Income for the Quarters and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Quarters and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

Part II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 6.

Exhibits

29

 

 

 

 

Index to Exhibits

30

 

 

 

 

Signatures

31

 

 

 

2


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except per share amounts)  

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

174,489

 

 

$

156,548

 

Short-term investments

 

 

37,605

 

 

 

26,109

 

Total cash, cash equivalents and short-term investments

 

 

212,094

 

 

 

182,657

 

Settlement assets

 

 

117,452

 

 

 

169,327

 

Trade accounts receivable:

 

 

 

 

 

 

 

 

Billed, net of allowance of $3,730 and $3,735

 

 

225,117

 

 

 

244,058

 

Unbilled

 

 

36,977

 

 

 

33,450

 

Income taxes receivable

 

 

3,341

 

 

 

4,297

 

Other current assets

 

 

42,205

 

 

 

35,293

 

Total current assets

 

 

637,186

 

 

 

669,082

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation of $100,661 and $98,029

 

 

83,199

 

 

 

84,429

 

Operating lease right-of-use assets

 

 

115,726

 

 

 

94,847

 

Software, net of amortization of $135,644 and $125,437

 

 

28,769

 

 

 

32,526

 

Goodwill

 

 

266,636

 

 

 

259,164

 

Acquired client contracts, net of amortization of $100,864 and $93,767

 

 

50,225

 

 

 

55,105

 

Client contract costs, net of amortization of $39,206 and $31,526

 

 

45,038

 

 

 

50,746

 

Deferred income taxes

 

 

9,641

 

 

 

9,392

 

Other assets

 

 

35,396

 

 

 

27,739

 

Total non-current assets

 

 

634,630

 

 

 

613,948

 

Total assets

 

$

1,271,816

 

 

$

1,283,030

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

13,125

 

 

$

10,313

 

Operating lease liabilities

 

 

22,580

 

 

 

22,442

 

Client deposits

 

 

34,387

 

 

 

38,687

 

Trade accounts payable

 

 

36,617

 

 

 

32,704

 

Accrued employee compensation

 

 

59,534

 

 

 

77,527

 

Settlement liabilities

 

 

116,032

 

 

 

168,342

 

Deferred revenue

 

 

52,835

 

 

 

45,094

 

Income taxes payable

 

 

3,664

 

 

 

2,806

 

Other current liabilities

 

 

18,612

 

 

 

20,778

 

Total current liabilities

 

 

357,386

 

 

 

418,693

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $6,543 and $10,053

 

 

339,707

 

 

 

346,509

 

Operating lease liabilities

 

 

101,262

 

 

 

78,936

 

Deferred revenue

 

 

18,884

 

 

 

18,552

 

Income taxes payable

 

 

2,734

 

 

 

2,543

 

Deferred income taxes

 

 

10,388

 

 

 

6,376

 

Other non-current liabilities

 

 

31,528

 

 

 

14,759

 

Total non-current liabilities

 

 

504,503

 

 

 

467,675

 

Total liabilities

 

 

861,889

 

 

 

886,368

 

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; 33,125 and 32,891 shares outstanding

 

 

701

 

 

 

696

 

Additional paid-in capital

 

 

462,775

 

 

 

454,663

 

Treasury stock, at cost; 35,646 and 35,356  shares

 

 

(880,162

)

 

 

(867,817

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains on short-term investments, net of tax

 

 

30

 

 

 

16

 

Cumulative foreign currency translation adjustments

 

 

(44,265

)

 

 

(39,519

)

Accumulated earnings

 

 

870,848

 

 

 

848,623

 

Total stockholders' equity

 

 

409,927

 

 

 

396,662

 

Total liabilities and stockholders' equity

 

$

1,271,816

 

 

$

1,283,030

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(in thousands, except per share amounts)

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

 

Revenue

$

244,108

 

 

$

251,414

 

 

$

730,046

 

 

$

742,063

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

131,073

 

 

 

132,054

 

 

 

400,432

 

 

 

393,251

 

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

30,425

 

 

 

32,551

 

 

 

90,025

 

 

 

95,787

 

 

Selling, general and administrative

 

47,032

 

 

 

46,694

 

 

 

136,415

 

 

 

137,984

 

 

Depreciation

 

5,817

 

 

 

5,365

 

 

 

17,016

 

 

 

15,919

 

 

Restructuring and reorganization charges

 

814

 

 

 

1,330

 

 

 

4,277

 

 

 

3,271

 

 

Total operating expenses

 

215,161

 

 

 

217,994

 

 

 

648,165

 

 

 

646,212

 

 

Operating income

 

28,947

 

 

 

33,420

 

 

 

81,881

 

 

 

95,851

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,641

)

 

 

(4,390

)

 

 

(11,894

)

 

 

(13,448

)

 

Amortization of original issue discount

 

(751

)

 

 

(709

)

 

 

(2,221

)

 

 

(2,099

)

 

Interest and investment income, net

 

254

 

 

 

392

 

 

 

1,086

 

 

 

1,328

 

 

Other, net

 

(2,067

)

 

 

108

 

 

 

(3,184

)

 

 

(123

)

 

Total other

 

(6,205

)

 

 

(4,599

)

 

 

(16,213

)

 

 

(14,342

)

 

Income before income taxes

 

22,742

 

 

 

28,821

 

 

 

65,668

 

 

 

81,509

 

 

Income tax provision

 

(9,176

)

 

 

(7,262

)

 

 

(20,222

)

 

 

(21,320

)

 

Net income

$

13,566

 

 

$

21,559

 

 

$

45,446

 

 

$

60,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

32,115

 

 

 

32,016

 

 

 

32,070

 

 

 

32,079

 

 

Diluted

 

32,273

 

 

 

32,518

 

 

 

32,296

 

 

 

32,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.42

 

 

$

0.67

 

 

$

1.42

 

 

$

1.88

 

 

Diluted

 

0.42

 

 

 

0.66

 

 

 

1.41

 

 

 

1.85

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

 

Net income

 

$

13,566

 

 

$

21,559

 

 

$

45,446

 

 

$

60,189

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

7,667

 

 

 

(6,897

)

 

 

(4,746

)

 

 

(6,868

)

 

Unrealized holding gains (losses) on short-term investments arising during period

 

 

(14

)

 

 

(4

)

 

 

14

 

 

 

24

 

 

Other comprehensive income (loss), net of tax

 

 

7,653

 

 

 

(6,901

)

 

 

(4,732

)

 

 

(6,844

)

 

Total comprehensive income, net of tax

 

$

21,219

 

 

$

14,658

 

 

$

40,714

 

 

$

53,345

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

(in thousands)

 

 

Shares of Common Stock Outstanding

 

Common Stock

 

Common Stock Warrants

 

Additional Paid-in Capital

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated Earnings

 

Total Stockholders' Equity

 

For the Nine Months Ended September 30, 2020:

 

BALANCE, January 1, 2020

 

32,891

 

$

696

 

$

-

 

$

454,663

 

$

(867,817

)

$

(39,503

)

$

848,623

 

$

396,662

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

21,514

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(24

)

 

-

 

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(15,084

)

 

-

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,406

 

Repurchase of common stock

 

(299

)

 

(2

)

 

-

 

 

(7,555

)

 

(6,408

)

 

-

 

 

-

 

 

(13,965

)

Issuance of common stock pursuant to employee stock purchase plan

 

14

 

 

-

 

 

-

 

 

564

 

 

-

 

 

-

 

 

-

 

 

564

 

Issuance of restricted common stock pursuant to stock-based compensation plans

 

476

 

 

5

 

 

-

 

 

(5

)

 

-

 

 

-

 

 

-

 

 

-

 

Cancellation of restricted common stock issued pursuant to stock-based compensation plans

 

(7

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

4,857

 

 

 

 

 

 

 

 

 

 

 

4,857

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(7,693

)

 

(7,693

)

BALANCE, March 31, 2020

 

33,075

 

 

699

 

 

-

 

 

452,524

 

 

(874,225

)

 

(54,611

)

 

862,444

 

 

386,831

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

10,366

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

52

 

 

-

 

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,671

 

 

-

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,089

 

Repurchase of common stock

 

(11

)

 

-

 

 

-

 

 

(100

)

 

(367

)

 

-

 

 

-

 

 

(467

)

Issuance of common stock pursuant to employee stock purchase plan

 

18

 

 

-

 

 

-

 

 

683

 

 

-

 

 

-

 

 

-

 

 

683

 

Issuance of restricted common stock pursuant to stock-based compensation plans

 

12

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Cancellation of restricted common stock issued pursuant to stock-based compensation plans

 

(14

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

5,255

 

 

 

 

 

 

 

 

 

 

 

5,255

 

Declaration of cash dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(7,769

)

 

(7,769

)

BALANCE, June 30, 2020

 

33,080

 

$

699

 

$

-

 

$

458,362

 

$

(874,592

)

$

(51,888

)

$

865,041

 

$

397,622

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

13,566

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(14

)

 

-

 

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

7,667

 

 

-

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,219

 

Repurchase of common stock

 

(143

)

 

-

 

 

-

 

 

(152

)

 

(5,570

)

 

-

 

 

-

 

 

(5,722

)

Issuance of common stock pursuant to employee stock purchase plan

 

16

 

 

-

 

 

-

 

 

591

 

 

-

 

 

-

 

 

-

 

 

591

 

Issuance of restricted common stock pursuant to stock-based compensation plans

 

183

 

 

2

 

 

-

 

 

(2

)

 

-

 

 

-

 

 

-

 

 

-

 

Cancellation of restricted common stock issued pursuant to stock-based compensation plans

 

(11

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-