10-Q 1 csgs-20240331.htm 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, 2024

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.)

 

169 Inverness Dr W, Suite 300

Englewood, Colorado 80112

(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 April 30, 2024, there were 29,685,975 shares of the registrant’s common stock outstanding.

 


 

CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q for the Quarter Ended March 31, 2024

INDEX

Page No.

 

 

 

Part I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (Unaudited)

3

 

 

 

Condensed Consolidated Statements of Income for the Quarters ended March 31, 2024 and 2023 (Unaudited)

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Quarters ended March 31, 2024 and 2023 (Unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Quarters ended March 31, 2024 and 2023 (Unaudited)

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters ended March 31, 2024 and 2023 (Unaudited)

7

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

Part II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

25

 

 

 

Item 1A.

Risk Factors

25

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

 

 

 

Item 5.

Other Information

25

 

 

 

Item 6.

Exhibits

25

 

 

 

Exhibit Index

26

 

 

 

 

Signatures

27

 

 

 

2


 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands)

 

 

March 31,
2024

 

 

December 31,
2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

120,810

 

 

$

186,264

 

Settlement and merchant reserve assets

 

 

192,962

 

 

 

274,699

 

Trade accounts receivable:

 

 

 

 

 

 

Billed, net of allowance of $5,692 and $5,432

 

 

275,359

 

 

 

267,680

 

Unbilled

 

 

84,347

 

 

82,163

 

Income taxes receivable

 

 

2,364

 

 

 

1,345

 

Other current assets

 

 

57,960

 

 

 

50,075

 

Total current assets

 

 

733,802

 

 

 

862,226

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net of depreciation of $126,435 and $121,816

 

 

60,834

 

 

 

65,545

 

Operating lease right-of-use assets

 

 

31,472

 

 

 

34,283

 

Software, net of amortization of $160,580 and $157,601

 

 

13,406

 

 

 

14,224

 

Goodwill

 

 

306,581

 

 

 

308,596

 

Acquired customer contracts, net of amortization of $127,773 and $126,469

 

 

33,477

 

 

 

35,879

 

Customer contract costs, net of amortization of $39,539 and $42,094

 

 

54,535

 

 

 

54,421

 

Deferred income taxes

 

 

49,552

 

 

 

57,855

 

Other assets

 

 

9,293

 

 

 

10,017

 

Total non-current assets

 

 

559,150

 

 

 

580,820

 

Total assets

 

$

1,292,952

 

 

$

1,443,046

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,500

 

 

$

7,500

 

Operating lease liabilities

 

 

15,400

 

 

 

15,946

 

Customer deposits

 

 

36,967

 

 

 

41,035

 

Trade accounts payable

 

 

43,768

 

 

 

46,406

 

Accrued employee compensation

 

 

44,006

 

 

 

84,380

 

Settlement and merchant reserve liabilities

 

 

191,498

 

 

 

273,817

 

Deferred revenue

 

 

56,404

 

 

 

54,199

 

Income taxes payable

 

 

1,886

 

 

 

4,104

 

Other current liabilities

 

 

23,738

 

 

 

33,449

 

Total current liabilities

 

 

421,167

 

 

 

560,836

 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $14,764 and $15,628

 

 

533,986

 

 

 

534,997

 

Operating lease liabilities

 

 

31,099

 

 

 

34,360

 

Deferred revenue

 

 

23,382

 

 

 

23,447

 

Income taxes payable

 

 

3,117

 

 

 

3,041

 

Deferred income taxes

 

 

124

 

 

 

123

 

Other non-current liabilities

 

 

10,737

 

 

 

12,916

 

Total non-current liabilities

 

 

602,445

 

 

 

608,884

 

    Total liabilities

 

 

1,023,612

 

 

 

1,169,720

 

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; 29,779 and 29,541 shares
     outstanding

 

 

717

 

 

 

713

 

Additional paid-in capital

 

 

491,005

 

 

 

490,947

 

Treasury stock, at cost; 40,583 and 40,398 shares

 

 

(1,145,738

)

 

 

(1,136,055

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

 

-

 

 

 

1

 

Cumulative foreign currency translation adjustments

 

 

(55,388

)

 

 

(50,414

)

Accumulated earnings

 

 

978,744

 

 

 

968,134

 

Total stockholders' equity

 

 

269,340

 

 

 

273,326

 

Total liabilities and stockholders' equity

 

$

1,292,952

 

 

$

1,443,046

 

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, 2024

 

 

March 31, 2023

 

 

Revenue

$

295,135

 

 

$

298,739

 

 

 

 

 

 

 

 

 

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

 

157,887

 

 

 

155,021

 

 

Other operating expenses:

 

 

 

 

 

 

Research and development

 

36,095

 

 

 

35,464

 

 

Selling, general and administrative

 

61,722

 

 

 

59,147

 

 

Depreciation

 

5,636

 

 

 

5,720

 

 

Restructuring and reorganization charges

 

1,998

 

 

 

5,194

 

 

Total operating expenses

 

263,338

 

 

 

260,546

 

 

Operating income

 

31,797

 

 

 

38,193

 

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

(7,506

)

 

 

(7,219

)

 

Interest income

 

2,616

 

 

 

569

 

 

Other, net

 

558

 

 

 

(2,432

)

 

Total other

 

(4,332

)

 

 

(9,082

)

 

Income before income taxes

 

27,465

 

 

 

29,111

 

 

Income tax provision

 

(7,998

)

 

 

(8,183

)

 

Net income

$

19,467

 

 

$

20,928

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

Basic

 

28,516

 

 

 

30,418

 

 

Diluted

 

28,797

 

 

 

30,609

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

Basic

$

0.68

 

 

$

0.69

 

 

Diluted

 

0.68

 

 

 

0.68

 

 

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, 2024

 

 

March 31, 2023

 

 

Net income

 

$

19,467

 

 

$

20,928

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(4,975

)

 

 

2,843

 

 

Other comprehensive income (loss), net of tax

 

 

(4,975

)

 

 

2,843

 

 

Total comprehensive income, net of tax

 

$

14,492

 

 

$

23,771

 

 

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

 

Total Stockholders' Equity

 

For the Quarter Ended March 31, 2024:

 

BALANCE, January 1, 2024

 

29,541

 

$

713

 

$

490,947

 

$

(1,136,055

)

$

(50,413

)

$

968,134

 

$

273,326

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19,467

 

 

 

     Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,975

)

 

-

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

14,492

 

Repurchase of common stock

 

(344

)

 

(2

)

 

(8,538

)

 

(9,683

)

 

-

 

 

-

 

 

(18,223

)

Issuance of common stock pursuant to employee stock
      purchase plan

 

20

 

 

-

 

 

866

 

 

-

 

 

-

 

 

-

 

 

866

 

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

 

573

 

 

6

 

 

(6

)

 

-

 

 

-

 

 

-

 

 

-

 

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

 

(11

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

7,736

 

 

-

 

 

-

 

 

-

 

 

7,736

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(8,857

)

 

(8,857

)

BALANCE, March 31, 2024

 

29,779

 

$

717

 

$

491,005

 

$

(1,145,738

)

$

(55,388

)

$

978,744

 

$

269,340

 

 

 

Shares of Common Stock Outstanding

 

Common Stock

 

Additional Paid-in Capital

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated Earnings

 

Total Stockholders' Equity

 

For the Quarter Ended March 31, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, January 1, 2023

 

31,269

 

$

708

 

$

495,189

 

$

(1,018,034

)

$

(58,829

)

$

936,215

 

$

355,249

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

20,928

 

 

 

     Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

2,843

 

 

-

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

23,771

 

Repurchase of common stock

 

(166

)

 

(2

)

 

(9,304

)

 

-

 

 

-

 

 

-

 

 

(9,306

)

Issuance of common stock pursuant to employee stock
      purchase plan

 

19

 

 

-

 

 

893

 

 

-

 

 

-

 

 

-

 

 

893

 

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

 

574

 

 

6

 

 

(6

)

 

-

 

 

-

 

 

-

 

 

-

 

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

 

(18

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

6,412

 

 

-

 

 

-

 

 

-

 

 

6,412

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(8,796

)

 

(8,796

)

BALANCE, March 31, 2023

 

31,678

 

$

712

 

$

493,184

 

$

(1,018,034

)

$

(55,986

)

$

948,347

 

$

368,223

 

 

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, 2024

 

 

March 31, 2023

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

$

19,467

 

 

$

20,928

 

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities-

 

 

 

 

 

 

Depreciation

 

5,636

 

 

 

5,757

 

 

Amortization

 

11,309

 

 

 

11,471

 

 

Asset impairment

 

-

 

 

 

1,595

 

 

Gain on lease modifications

 

-

 

 

 

(125

)

 

Unrealized foreign currency transaction (gain) loss, net

 

(352

)

 

 

41

 

 

Deferred income taxes

 

7,859

 

 

 

4,079

 

 

Stock-based compensation

 

7,736

 

 

 

6,412

 

 

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

 

 

 

 

 

 

Trade accounts receivable, net

 

(10,959

)

 

 

(1,825

)

 

Other current and non-current assets and liabilities

 

(9,827

)

 

 

(6,871

)

 

Income taxes payable/receivable

 

(3,158

)

 

 

1,647

 

 

Trade accounts payable and accrued liabilities

 

(59,581

)

 

 

(36,071

)

 

Deferred revenue

 

2,519

 

 

 

8,359

 

 

Net cash provided by (used in) operating activities

 

(29,351

)

 

 

15,397

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of software, property, and equipment

 

(4,774

)

 

 

(8,700

)

 

Proceeds from sale/maturity of short-term investments

 

-

 

 

 

71

 

 

Net cash used in investing activities

 

(4,774

)

 

 

(8,629

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock

 

866

 

 

 

893

 

 

Payment of cash dividends

 

(9,463

)

 

 

(9,088

)

 

Repurchase of common stock

 

(17,973

)

 

 

(9,306

)

 

Deferred acquisition payments

 

(488

)

 

 

(274

)

 

Proceeds from long-term debt

 

-

 

 

 

30,000

 

 

Payments on long-term debt

 

(1,875

)

 

 

(1,875

)

 

Settlement and merchant reserve activity

 

(82,212

)

 

 

(61,482

)

 

Net cash used in financing activities

 

(111,145

)

 

 

(51,132

)

 

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

 

(1,962

)

 

 

327

 

 

 

 

 

 

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

 

(147,232

)

 

 

(44,037

)

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash, beginning of period

 

463,876

 

 

 

389,018

 

 

Cash, cash equivalents, and restricted cash, end of period

$

316,644

 

 

$

344,981

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

Cash paid during the period for-

 

 

 

 

 

 

Interest

$

10,898

 

 

$

7,005

 

 

Income taxes

 

3,288

 

 

 

2,211

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

$

120,810

 

 

$

167,681

 

 

Settlement and merchant reserve assets

 

192,962

 

 

 

177,300

 

 

Restricted cash included in current and non-current assets

 

2,872

 

 

 

-

 

 

Total cash, cash equivalents, and restricted cash

$

316,644

 

 

$

344,981

 

 

 

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

7


 

CSG SYSTEMS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1. GENERAL

We have prepared the accompanying unaudited condensed consolidated financial statements as of March 31, 2024 and December 31, 2023, and for the quarters ended March 31, 2024 and 2023, in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position and operating results have been included. The unaudited Condensed Consolidated Financial Statements (the “Financial Statements”) should be read in conjunction with the Consolidated Financial Statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “2023 10-K”), filed with the SEC. The results of operations for the quarter ended March 31, 2024 are not necessarily indicative of the expected results for the entire year ending December 31, 2024.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements. The preparation of our Financial Statements requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our Financial Statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue. The majority of our future revenue is related to our SaaS and related solutions customer contracts that include variable consideration dependent upon a series of monthly volumes and/or daily usage of services and have contractual terms ending from 2024 through 2036. Our customer contracts may include guaranteed minimums and fixed monthly or annual fees. As of March 31, 2024, our aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $1.4 billion, which is made up of fixed fee consideration and guaranteed minimums expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied). We expect to recognize over 75% of this amount by the end of 2026, with the remaining amount recognized by the end of 2036. We have excluded from this amount variable consideration expected to be recognized in the future related to performance obligations that are unsatisfied.

The nature, amount, timing, and uncertainty of our revenue and how revenue and cash flows are affected by economic factors is most appropriately depicted by revenue type, geographic region, and customer vertical.

Revenue by type for the quarters ended March 31, 2024 and 2023 was as follows (in thousands):

 

 

 

Quarter Ended

 

 

 

March 31, 2024

 

 

March 31, 2023

 

SaaS and related solutions

 

$

261,695

 

 

$

257,876

 

Software and services

 

 

22,394

 

 

 

30,891

 

Maintenance

 

 

11,046

 

 

 

9,972

 

Total revenue

 

$

295,135

 

 

$

298,739

 

 

We use the location of the customer as the basis of attributing revenue to geographic regions. Revenue by geographic region for the quarters ended March 31, 2024 and 2023, as a percentage of our total revenue, was as follows:

 

 

 

Quarter Ended

 

 

 

March 31, 2024

 

 

March 31, 2023

 

Americas (principally the U.S.)

 

 

86

%

 

 

84

%

Europe, Middle East, and Africa

 

 

9

%

 

 

12

%

Asia Pacific

 

 

5

%

 

 

4

%

Total revenue

 

 

100

%

 

 

100

%

 

8


 

We generate our revenue primarily from the global communications markets; however, we serve an expanding group of customers in other markets including retail, financial services, healthcare, insurance, and government entities. Revenue by customer vertical for the quarters ended March 31, 2024 and 2023, as a percentage of our total revenue, was as follows:

 

 

 

Quarter Ended

 

 

 

March 31, 2024

 

 

March 31, 2023

 

Broadband/Cable/Satellite

 

 

51

%

 

 

52

%

Telecommunications

 

 

19

%

 

 

20

%

Other

 

 

30

%

 

 

28

%

Total revenue

 

 

100

%

 

 

100

%

Deferred revenue as of December 31, 2023 and 2022 recognized during the quarters ended March 31, 2024 and 2023 was $19.1 million and $20.2 million, respectively.

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of three months or less as of the date of purchase to be cash equivalents. As of March 31, 2024 and December 31, 2023, our cash equivalents consist primarily of institutional money market funds and time deposits held at major banks. For the cash and cash equivalents denominated in foreign currencies and/or located outside the U.S., we do not anticipate any material amounts being unavailable for use in running our business, but may face limitations on moving cash out of certain foreign jurisdictions due to currency controls and potential negative economic consequences.

Restricted Cash. Restricted cash includes cash that is legally or contractually restricted, as well as our settlement and merchant reserve assets (discussed below). The nature of the restrictions on our settlement and merchant reserve assets consists of contractual restrictions with the merchants and restrictions arising from our policy and intention. It has historically been our policy to segregate settlement and merchant reserve assets from our operating cash balances and our intention is to continue to do so. As of both March 31, 2024 and December 31, 2023, we had $2.9 million of restricted cash that mainly serves to collateralize bank and performance guarantees included in other current and non-current assets in our unaudited Condensed Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”).

Settlement and Merchant Reserve Assets and Liabilities. Settlement assets and settlement liabilities represent cash collected on behalf of merchants via payments processing services which is held for an established holding period until settlement with the customer. The holding period is generally one to four business days depending on the payment model and contractual terms with the customer. During the holding period, cash is subject to restriction and segregation based on the nature of our custodial relationship with the merchants. Should we fail to remit these funds to our merchants, the merchant's sole recourse for payment would be against us. These rights and obligations are set forth in the contracts between us and the merchants. Settlement assets are held with various major financial institutions and a corresponding liability is recorded for the amounts owed to the customer. At any given time, there may be differences between the cash held and the corresponding liability due to the timing of operating-related cash transfers.

Merchant reserve assets/liabilities represent deposits collected from merchants to mitigate our risk of loss due to nonperformance of settlement obligations initiated by those merchants using our payments processing services, or non-payment by customers for services rendered by us. We perform a credit risk evaluation on each customer based on multiple criteria, which provides the basis for the deposit amount required for each merchant. For the duration of our relationship with each merchant, we hold their reserve deposits with major financial institutions. We hold these funds in separate accounts, which are offset by corresponding liabilities.

The following table summarizes our settlement and merchant reserve assets and liabilities as of the indicated periods (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Settlement assets/liabilities

 

$

178,679

 

 

$

177,207

 

 

$

260,712

 

 

$

259,825

 

Merchant reserve assets/liabilities

 

 

14,283

 

 

 

14,291

 

 

 

13,987

 

 

 

13,992

 

Total

 

$

192,962

 

 

$

191,498

 

 

$

274,699

 

 

$

273,817

 

Financial Instruments. Our financial instruments as of March 31, 2024 and December 31, 2023 include cash and cash equivalents, settlement and merchant reserve assets and liabilities, accounts receivable, accounts payable, and debt. Due to their short maturities, the carrying amounts of cash equivalents, settlement and merchant reserve assets and liabilities, accounts receivable, and accounts payable approximate their fair value.

We have chosen not to record our debt at fair value, with changes recognized in earnings each reporting period. The following table indicates the carrying value and estimated fair value of our debt as of the indicated periods (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

2023 Convertible Notes (par value)

 

$

425,000

 

 

$

420,856

 

 

$

425,000

 

 

$

428,506

 

2021 Credit Agreement (carrying value including
    current maturities)

 

 

131,250

 

 

 

131,250

 

 

 

133,125

 

 

 

133,125

 

 

9


 

The fair value of our convertible notes was estimated based upon quoted market prices or recent sales activity, while the fair value of our credit agreement was estimated using a discounted cash flow methodology, both of which are considered Level 2 inputs. See Note 4 for a discussion regarding our debt.

Pillar Two. Numerous foreign jurisdictions have enacted or are in the process of enacting legislation to adopt a minimum effective tax rate. Pillar Two, which was established by the Organization for Economic Co-operation and Development (OECD), generally provides for a 15 percent minimum effective tax rate for multinational enterprises in every jurisdiction in which they operate. The U.S. has not yet adopted Pillar Two, however, various other governments around the world have. These rules did not have a material impact on our taxes for the three months ended March 31, 2024. We continue to monitor evolving tax legislation in the jurisdictions in which we operate.

Accounting Pronouncements Issued but Not Yet Effective. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), (“ASU 2023-07”), which enhances reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. ASU 2023-07 also requires disclosure of the title and position of the company’s Chief Operating Decision Maker (“CODM”) and how the CODM uses financial reporting to assess segment performance and allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We are in the process of evaluating what impact this ASU will have on our Financial Statements and disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires entities to disclose more detailed information about their effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. We are in the process of evaluating what impact this ASU will have on our Financial Statements and disclosures.

 

3. GOODWILL AND INTANGIBLE ASSETS

Goodwill. The changes in the carrying amount of goodwill for the first quarter of 2024 were as follows (in thousands):

 

January 1, 2024, balance

 

$

308,596

 

Effects of changes in foreign currency exchange rates

 

 

(2,015

)

March 31, 2024, balance

 

$

306,581

 

Other Intangible Assets. Our other intangible assets subject to ongoing amortization consist of acquired customer contracts and software. As of March 31, 2024 and December 31, 2023, the carrying values of these assets were as follows (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Amount

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Amount

 

Acquired customer contracts

 

$

161,250

 

 

$

(127,773

)

 

$

33,477

 

 

$

162,348

 

 

$

(126,469

)

 

$

35,879

 

Software

 

 

173,986

 

 

 

(160,580

)

 

 

13,406

 

 

 

171,825

 

 

 

(157,601

)

 

 

14,224

 

Total other intangible assets

 

$

335,236

 

 

$

(288,353

)

 

$

46,883

 

 

$

334,173

 

 

$

(284,070

)

 

$

50,103

 

 

The total amortization expense related to other intangible assets for the first quarters of 2024 and 2023 were $5.4 million and $6.7 million, respectively. Based on the March 31, 2024 net carrying value of our intangible assets, the estimated total amortization expense for each of the five succeeding fiscal years ending December 31 are: 2024 - $18.6 million; 2025 - $11.9 million; 2026 - $8.0 million; 2027 - $3.2 million; and 2028 - $2.5 million.

 

Customer Contract Costs. As of March 31, 2024 and December 31, 2023, the carrying values of our customer contract cost assets, related to those contracts with a contractual term greater than one year, were as follows (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Amount

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Amount

 

Customer contract costs

 

$

94,074

 

 

$

(39,539

)

 

$

54,535

 

 

$

96,515

 

 

$

(42,094

)

 

$

54,421

 

The total amortization expense related to customer contract costs for the first quarters of 2024 and 2023 were $5.0 million and $4.6 million, respectively.

10


 

4. DEBT

As of March 31, 2024 and December 31, 2023, our long-term debt was as follows (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

2023 Convertible Notes:

 

 

 

 

 

 

2023 Convertible Notes – senior unsecured convertible notes, due
    
September 2028, cash interest at 3.875%

 

$

425,000

 

 

$

425,000

 

Less – deferred financing costs

 

 

(12,577

)

 

 

(13,216

)

 2023 Convertible Notes, net of unamortized discounts

 

 

412,423

 

 

 

411,784

 

2021 Credit Agreement:

 

 

 

 

 

 

2021 Term Loan, due September 2026, interest at adjusted SOFR plus
    applicable margin (combined rate of
6.777% at March 31, 2024)

 

 

131,250

 

 

 

133,125

 

Less – deferred financing costs

 

 

(2,187

)

 

 

(2,412

)

 2021 Term Loan, net of unamortized discounts

 

 

129,063

 

 

 

130,713

 

$450 million revolving loan facility, due September 2026, interest at adjusted
    SOFR plus applicable margin

 

 

-

 

 

 

-