10-Q 1 csgs-20220331.htm FORM 10-Q 10-Q
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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 March 31, 2022

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 May 2, 2022, there were 32,437,938 shares of the registrant’s common stock outstanding.

 

 


 

CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q for the Quarter Ended March 31, 2022

INDEX

 

 

 

Page No.

 

 

 

Part I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Income for the Quarters ended March 31, 2022 and 2021 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Quarters ended March 31, 2022 and 2021 (Unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Quarters ended March 31, 2022 and 2021 (Unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2022 and 2021 (Unaudited)

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

 

 

 

Item 2.

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

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

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

28

 

 

 

 

Index to Exhibits

29

 

 

 

 

Signatures

30

 

 

 

2


 

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands)

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

181,457

 

 

$

205,635

 

Short-term investments

 

 

6,133

 

 

 

28,037

 

Total cash, cash equivalents and short-term investments

 

 

187,590

 

 

 

233,672

 

Settlement and merchant reserve assets

 

 

163,145

 

 

 

186,267

 

Trade accounts receivable:

 

 

 

 

 

 

Billed, net of allowance of $4,924 and $4,250

 

 

238,368

 

 

 

244,317

 

Unbilled

 

 

42,379

 

 

 

35,802

 

Income taxes receivable

 

 

8,617

 

 

 

6,414

 

Other current assets

 

 

46,676

 

 

 

41,727

 

Total current assets

 

 

686,775

 

 

 

748,199

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net of depreciation of $114,393 and $111,244

 

 

70,803

 

 

 

73,580

 

Operating lease right-of-use assets

 

 

71,850

 

 

 

86,034

 

Software, net of amortization of $156,490 and $152,283

 

 

29,234

 

 

 

29,757

 

Goodwill

 

 

319,034

 

 

 

321,330

 

Acquired customer contracts, net of amortization of $115,726 and $114,166

 

 

54,480

 

 

 

57,207

 

Customer contract costs, net of amortization of $35,860 and $32,410

 

 

47,025

 

 

 

46,618

 

Deferred income taxes

 

 

8,755

 

 

 

8,584

 

Other assets

 

 

15,378

 

 

 

15,840

 

Total non-current assets

 

 

616,559

 

 

 

638,950

 

Total assets

 

$

1,303,334

 

 

$

1,387,149

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

252,500

 

 

$

237,500

 

Operating lease liabilities

 

 

22,832

 

 

 

23,270

 

Customer deposits

 

 

40,324

 

 

 

43,546

 

Trade accounts payable

 

 

35,193

 

 

 

35,397

 

Accrued employee compensation

 

 

61,516

 

 

 

91,115

 

Settlement and merchant reserve liabilities

 

 

161,782

 

 

 

185,276

 

Deferred revenue

 

 

51,990

 

 

 

53,748

 

Income taxes payable

 

 

800

 

 

 

398

 

Other current liabilities

 

 

19,940

 

 

 

24,852

 

Total current liabilities

 

 

646,877

 

 

 

695,102

 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $3,218 and $3,406

 

 

135,532

 

 

 

137,219

 

Operating lease liabilities

 

 

64,750

 

 

 

70,068

 

Deferred revenue

 

 

16,156

 

 

 

19,599

 

Income taxes payable

 

 

4,148

 

 

 

4,058

 

Deferred income taxes

 

 

7,729

 

 

 

7,752

 

Other non-current liabilities

 

 

13,970

 

 

 

13,107

 

Total non-current liabilities

 

 

242,285

 

 

 

251,803

 

Total liabilities

 

 

889,162

 

 

 

946,905

 

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; 32,560 and 32,495 shares outstanding

 

 

709

 

 

 

705

 

Additional paid-in capital

 

 

472,078

 

 

 

488,303

 

Treasury stock, at cost; 36,979 and 36,713 shares

 

 

(946,102

)

 

 

(930,106

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gains on short-term investments, net of tax

 

 

(8

)

 

 

(6

)

Cumulative foreign currency translation adjustments

 

 

(39,529

)

 

 

(38,347

)

Accumulated earnings

 

 

923,389

 

 

 

916,060

 

Total CSG stockholders' equity

 

 

410,537

 

 

 

436,609

 

Noncontrolling interest

 

 

3,635

 

 

 

3,635

 

Total stockholders' equity

 

 

414,172

 

 

 

440,244

 

Total liabilities and stockholders' equity

 

$

1,303,334

 

 

$

1,387,149

 

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

3


 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(in thousands, except per share amounts)

 

 

Quarter Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

 

Revenue

$

264,400

 

 

$

253,119

 

 

 

 

 

 

 

 

 

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

 

138,418

 

 

 

133,542

 

 

Other operating expenses:

 

 

 

 

 

 

Research and development

 

32,981

 

 

 

32,212

 

 

Selling, general and administrative

 

57,342

 

 

 

48,815

 

 

Depreciation

 

6,138

 

 

 

6,113

 

 

Restructuring and reorganization charges

 

13,106

 

 

 

1,060

 

 

Total operating expenses

 

247,985

 

 

 

221,742

 

 

Operating income

 

16,415

 

 

 

31,377

 

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

(3,272

)

 

 

(3,592

)

 

Amortization of original issue discount

 

-

 

 

 

(772

)

 

Interest and investment income, net

 

130

 

 

 

124

 

 

Loss on derivative liability upon debt conversion

 

(7,456

)

 

 

-

 

 

Other, net

 

812

 

 

 

(555

)

 

Total other

 

(9,786

)

 

 

(4,795

)

 

Income before income taxes

 

6,629

 

 

 

26,582

 

 

Income tax provision

 

(516

)

 

 

(6,951

)

 

Net income

$

6,113

 

 

$

19,631

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

Basic

 

31,416

 

 

 

31,844

 

 

Diluted

 

31,810

 

 

 

32,146

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

Basic

$

0.19

 

 

$

0.62

 

 

Diluted

 

0.19

 

 

 

0.61

 

 

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

4


 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(in thousands)

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

 

March 31, 2022

 

 

March 31, 2021

 

 

Net income

 

$

6,113

 

 

$

19,631

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,182

)

 

 

(355

)

 

Unrealized holding losses on short-term investments arising
     during period

 

 

(2

)

 

 

(6

)

 

Other comprehensive loss, net of tax

 

 

(1,184

)

 

 

(361

)

 

Total comprehensive income, net of tax

 

$

4,929

 

 

$

19,270

 

 

The accompanying notes are an integral part of these unaudited 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

 

Additional Paid-in Capital

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated Earnings

 

Noncontrolling Interest

 

Total Stockholders' Equity

 

For the Quarter Ended March 31, 2022:

 

BALANCE, January 1, 2022

 

32,495

 

$

705

 

$

488,303

 

$

(930,106

)

$

(38,353

)

$

916,060

 

$

3,635

 

$

440,244

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

6,113

 

 

-

 

 

 

     Unrealized gain on short-term investments,
            net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

(2

)

 

-

 

 

-

 

 

 

     Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,182

)

 

-

 

 

-

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,929

 

Repurchase of common stock

 

(389

)

 

(1

)

 

(7,804

)

 

(15,996

)

 

-

 

 

-

 

 

-

 

 

(23,801

)

Issuance of common stock pursuant to employee
      stock purchase plan

 

12

 

 

-

 

 

650

 

 

-

 

 

-

 

 

-

 

 

-

 

 

650

 

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

 

(34

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

5,581

 

 

-

 

 

-

 

 

-

 

 

-

 

 

5,581

 

Settlement of convertible debt securities, net of
      tax

 

-

 

 

-

 

 

(4,845

)

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,845

)

Adjustments due to adoption of new accounting
      standard

 

-

 

 

-

 

 

(9,802

)

 

-

 

 

-

 

 

9,802

 

 

-

 

 

-

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(8,586

)

 

-

 

 

(8,586

)

BALANCE, March 31, 2022

 

32,560

 

$

709

 

$

472,078

 

$

(946,102

)

$

(39,537

)

$

923,389

 

$

3,635

 

$

414,172

 

 

 

Shares of Common Stock Outstanding

 

Common Stock

 

Additional Paid-in Capital

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated Earnings

 

Noncontrolling Interest

 

Total Stockholders' Equity

 

For the Quarter Ended March 31, 2021:

 

BALANCE, January 1, 2021

 

32,713

 

$

700

 

$

470,557

 

$

(894,126

)

$

(31,138

)

$

876,402

 

$

-

 

$

422,395

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19,631

 

 

-

 

 

 

Unrealized gain on short-term investments, net
      of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

(6

)

 

-

 

 

-

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

(355

)

 

-

 

 

-

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,270

 

Repurchase of common stock

 

(252

)

 

(1

)

 

(5,202

)

 

(6,518

)

 

-

 

 

-

 

 

-

 

 

(11,721

)

Issuance of common stock pursuant to employee
      stock purchase plan

 

16

 

 

-

 

 

619

 

 

-

 

 

-

 

 

-

 

 

-

 

 

619

 

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

 

487

 

 

5

 

 

(5

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

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

 

(1

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

5,395

 

 

-

 

 

-

 

 

-

 

 

-

 

 

5,395

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(8,243

)

 

-

 

 

(8,243

)

BALANCE, March 31, 2021

 

32,963

 

$

704

 

$

471,364

 

$

(900,644

)

$

(31,499

)

$

887,790

 

$

-

 

$

427,715

 

 

 

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

 

6


 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)

 

 

Quarter Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

$

6,113

 

 

$

19,631

 

 

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

 

 

 

 

 

 

Depreciation

 

6,138

 

 

 

6,113

 

 

Amortization

 

13,870

 

 

 

10,737

 

 

Amortization of original issue discount

 

-

 

 

 

772

 

 

Asset impairment

 

10,705

 

 

 

102

 

 

Loss on short-term investments and other

 

15

 

 

 

15

 

 

Loss on derivative liability upon debt conversion

 

7,456

 

 

 

-

 

 

Deferred income taxes

 

(55

)

 

 

6,508

 

 

Stock-based compensation

 

5,581

 

 

 

5,395

 

 

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

 

 

 

 

 

 

Trade accounts receivable, net

 

46

 

 

 

(23,874

)

 

Other current and non-current assets and liabilities

 

(6,069

)

 

 

(414

)

 

Income taxes payable/receivable

 

(1,735

)

 

 

(1,022

)

 

Trade accounts payable and accrued liabilities

 

(42,550

)

 

 

(28,101

)

 

Deferred revenue

 

(5,064

)

 

 

1,914

 

 

Net cash used in operating activities

 

(5,549

)

 

 

(2,224

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of software, property and equipment

 

(10,375

)

 

 

(8,239

)

 

Purchases of short-term investments

 

-

 

 

 

(32,304

)

 

Proceeds from sale/maturity of short-term investments

 

21,887

 

 

 

29,340

 

 

Acquisition of and investments in business, net of cash acquired

 

-

 

 

 

(648

)

 

Net cash provided by (used in) investing activities

 

11,512