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.

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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

 

 

 

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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.

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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.

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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.

 

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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.

 

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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.

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CSG SYSTEMS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information contained in this MD&A should be read in conjunction with the Financial Statements and Notes thereto included in this Form 10-Q and the audited consolidated financial statements and notes thereto in our 2023 10-K.

Forward-Looking Statements

 

This report contains a number of forward-looking statements relative to our future plans and our expectations concerning our business and the industries we serve. These forward-looking statements are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. Some of the risks that are foreseen by management are outlined within Part I, Item 1A. Risk Factors of our 2023 10-K. Readers are strongly encouraged to review that section closely in conjunction with MD&A.

Company Overview

 

We are a purpose-driven SaaS platform company that enables global companies in a wide variety of industry verticals to tackle the ever-growing complexity of business in the digital age. Our industry leading revenue management and digital monetization, customer experience, and payments solutions make ordinary customer experiences extraordinary. Our cloud-first architecture and customer-centric approach help companies around the world acquire, monetize, engage, and retain the B2B (business-to-business), B2C (business-to-consumer), and B2B2X (business-to-business-to-consumer) customers. As brands reimagine their engagement strategies in an increasingly connected world, we sit at the center of a complex, multi-sided business model ensuring monetization and customer engagement is handled at all levels of the ecosystem.

 

We leverage 40 years of experience to deliver innovative customer engagement solutions for every stage of the customer lifecycle so our customers can deliver an outstanding customer experience that adapts to their customers’ rapidly changing demands. Our diverse, worldwide workforce draws from real-world knowledge and extensive expertise to design and implement business solutions that make our customers’ hardest decisions simpler so that they can focus on delivering differentiated and real-time experiences to their customers. As a global technology leader, we aspire to envision, invent, and shape a better, more future-ready world.

 

We focus our research and development (“R&D”) and acquisition investments on expanding our offerings in a timely and efficient manner to address the complex, transformative needs of our customers. Our scalable, modular, and flexible solutions combined with our domain expertise and our ability to effectively migrate customers to our solutions, provide the industry with proven solutions to improve their profitability and consumers’ experiences. We have specifically architected our solutions to offer a phased, incremental approach to transforming our customers' businesses, thereby reducing the business interruption risk associated with this evolution.

 

As discussed in Note 2 to our Financial Statements, we generate a majority of our revenue 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.

 

We are a member of the S&P Small Cap 600 and Russell 2000 indices.

 

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Management Overview of Quarterly Results

 

First Quarter Highlights. A summary of our results of operations for the first quarter of 2024, when compared to the first quarter of 2023, is as follows (in thousands, except per share amounts and percentages):

 

		Quarter Ended
		March 31, 2024				March 31, 2023
Revenue		$	295,135			$	298,739
Transaction fees (1)			25,062				21,973
Operating Results:
Operating income		$	31,797			$	38,193
Operating margin percentage			10.8	%			12.8	%
Diluted EPS		$	0.68			$	0.68
Supplemental Data:
Restructuring and reorganization charges (2)		$	1,998			$	5,194
Executive transition costs			352				-
Acquisition-related costs:
Amortization of acquired intangible assets			2,852				3,209
Transaction-related costs			-				158
Stock-based compensation (2)			7,869				6,757

Revenue. Revenue for the first quarter of 2024 was $295.1 million, a 1.2% decrease when compared to revenue of $298.7 million for the first quarter of 2023. The decrease in revenue is primarily attributed to lower software and services revenue in the first quarter of 2024, resulting from the closure of approximately $10 million of software license upgrades in the first quarter of 2023. This was offset to a certain degree by the continued growth of our SaaS and related solutions revenue, to include our payments solutions.

Operating Results. Operating income for the first quarter of 2024 was $31.8 million, or a 10.8% operating margin percentage, compared to $38.2 million, or a 12.8% operating margin percentage for the first quarter of 2023. The decrease in operating income is mainly attributed to the higher software and services revenue recognized in the first quarter of 2023, discussed above, as the costs associated with this revenue is not generally dependent upon on the timing of the deal closure, offset to a certain degree by lower restructuring and reorganization charges.

Diluted EPS. Diluted EPS for the first quarter of 2024 and 2023 was $0.68, for both periods, with the first quarter of 2024 benefiting primarily from foreign currency movements and a lower share count.

Cash and Cash Flows. As of March 31, 2024, we had cash and cash equivalents of $120.8 million, as compared to $186.3 million as of December 31, 2023. Our cash flows used in operating activities for the first quarter of 2024 were ($29.4) million. Cash flows for the first quarter of 2024 were negatively impacted by unfavorable working capital changes, to include the payment of 2023 accrued employee incentive compensation. See the Liquidity section below for further discussion of our cash flows.

 

 

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Significant Customer Relationships

A large percentage of our revenue is generated from a limited number of customers in the global communications industry, with our three largest customers being Charter Communications Inc. (“Charter”), Comcast, and DISH Network L.L.C.

Customer Concentration. We have significant customer concentration, with the following two customers exceeding 10% of our revenue (in thousands, except percentages):

 

		Quarter Ended
		March 31, 2024								December 31, 2023								March 31, 2023
		Amount				% of Revenue				Amount				% of Revenue				Amount				% of Revenue
Charter		$	60,849				21	%		$	60,128				20	%		$	61,532				21	%
Comcast			52,804				18	%			54,651				18	%			53,415				18	%

The percentages of net billed accounts receivable balances attributable to these customers as of the indicated dates were as follows:

		As of
		March 31, 2024				December 31, 2023				March 31, 2023
Charter			21	%			23	%			22	%
Comcast			18	%			17	%			19	%

See our 2023 10-K for additional discussion of our business relationships and contractual terms with Comcast and Charter.

Risk of Customer Concentration. We expect to continue to generate a large percentage of our future revenue from a limited number customers. There are inherent risks whenever a large percentage of total revenue is concentrated with a limited number of customers. Should a significant customer: (i) terminate or fail to renew their contracts with us, in whole or in part, for any reason; (ii) significantly reduce the number of customer accounts processed on our solutions, the price paid for our services, or the scope of services that we provide; or (iii) experience financial or operating difficulties, it could have a material adverse effect on our financial position and results of operations.

Critical Accounting Policies

The preparation of our Financial Statements in conformity with U.S. GAAP requires us to select appropriate accounting policies, and to make judgments and estimates affecting the application of those accounting policies. In applying our accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in our Financial Statements.

We have identified the most critical accounting policies that affect our financial position and the results of our operations. Those critical accounting policies were determined by considering the accounting policies that involve the most complex or subjective decisions or assessments. The most critical accounting policies identified relate to the following items: (i) revenue recognition; (ii) impairment assessments of long-lived assets; (iii) income taxes; and (iv) loss contingencies. These critical accounting policies, as well as our other significant accounting policies, are discussed in our 2023 10-K.

Results of Operations

Revenue. Total revenue for the first quarter of 2024 was $295.1 million, a 1.2% decrease when compared to $298.7 million for the first quarter of 2023.

Revenue by type for the first quarters of 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

 

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The decrease in revenue is primarily attributed to lower software and services revenue in the first quarter of 2024 resulting from the closure of approximately $10 million of software license upgrades in the first quarter of 2023. This was offset to a certain degree by the continued growth of our SaaS and related solutions revenue, to include our payments solutions.

We use the location of the customer as the basis of attributing revenue to individual countries. Revenue by geographic regions for the first quarters of 2024 and 2023 was as follows (in thousands):

 

		Quarter Ended
		March 31, 2024				March 31, 2023
Americas (principally the U.S.)		$	254,538			$	250,976
Europe, Middle East, and Africa			26,829				36,673
Asia Pacific			13,768				11,090
Total revenue		$	295,135			$	298,739

Total Operating Expenses. Total operating expenses for the first quarter of 2024 were $263.3 million, a 1.1% increase when compared to $260.5 million for the first quarter of 2023. The increases in total operating expenses are reflective of the higher SaaS and related solutions revenue between periods, partially offset by the decrease in restructuring and reorganization charges, discussed below.

The components of total operating expenses are discussed in more detail below.

Cost of Revenue (Exclusive of Depreciation). The cost of revenue for the first quarter of 2024 was $157.9 million, a 1.8% increase when compared to $155.0 million for the first quarter of 2023. The increase in cost of revenue between periods is reflective of the increase in SaaS and related solutions revenue year-over-year. Total cost of revenue as a percentage of revenue for the first quarters of 2024 and 2023 was 53.5% and 51.9%, respectively.

R&D Expense (Exclusive of Depreciation). R&D expense for the first quarter of 2024 was $36.1 million, a 1.8% increase when compared to $35.5 million for the first quarter of 2023. The increase in R&D expense between periods is mainly attributed to increased employee-related costs. Our R&D efforts are focused on the continued evolution of our solutions that enable us to launch, monetize, and scale new digital services quickly and across any channel, while delivering an exceptional customer experience. As a percentage of total revenue, R&D expense for the first quarters of 2024 and 2023 was 12.2% and 11.9%, respectively.

Selling, General, and Administrative ("SG&A") Expense (Exclusive of Depreciation). SG&A expense for the first quarter of 2024 was $61.7 million, a 4.4% increase when compared to $59.1 million for the first quarter of 2023. The increase in SG&A expense is primarily attributed to increases in employee-related costs, to include stock-based compensation and travel expense. As a percentage of total revenue, SG&A expense for the first quarters of 2024 and 2023 was 20.9% and 19.8%, respectively.

Restructuring and Reorganization Charges. Restructuring and reorganization charges for the first quarter of 2024 were $2.0 million, a $3.2 million decrease when compared to $5.2 million for the first quarter of 2023. The restructuring and reorganization charges for the first quarter of 2024 relate mainly to a reduction in workforce resulting in restructuring charges related to involuntary terminations of $1.6 million.

 

See Note 6 to our Financial Statements for additional discussion.

Operating Income. Operating income for the first quarter of 2024 was $31.8 million, or 10.8% of total revenue, compared to $38.2 million, or 12.8% of total revenue for the first quarter of 2023. The decrease in operating income is mainly attributed to the $10 million of software license revenue recognized in the first quarter of 2023, discussed above, as the cost associated with this revenue is not generally dependent upon on the timing of the deal closures, offset to a certain degree by lower restructuring and reorganization charges.

Interest Expense. Interest expense for the first quarter of 2024 was $7.5 million, a 4.0% increase when compared to $7.2 million for the first quarter of 2023. Our interest expense relates primarily to the 2023 Convertible Notes and 2021 Credit Agreement. The increase in interest expense between periods can be attributed to a higher outstanding debt balance during the first quarter of 2024, partially offset by a lower average interest rate.

See Note 4 to our Financial Statements for additional discussion of our long-term debt.

Interest Income. Interest income for the first quarter of 2024 was $2.6 million, a $2.0 million increase when compared to $0.6 million for the first quarter of 2023, with the increase primarily attributed to certain settlement assets being swept into overnight money market accounts on a daily basis.

Other, net. Other, net for the first quarter of 2024 was $0.6 million of other income, a $3.0 million change when compared to $2.4 million of other expense for the first quarter of 2023, with the change primarily attributed to foreign currency movements.

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Income Tax Provision. The effective income tax rates for the first quarters of 2024 and 2023 were 29% and 28%, respectively. Our estimated full year 2024 effective income tax rate is approximately 29%, a slight increase when compared to our 2023 full year rate of approximately 28%.

Liquidity

Cash and Liquidity. As of March 31, 2024, our principal sources of liquidity included cash and cash equivalents of $120.8 million, compared to $186.3 million as of December 31, 2023.

As part of our 2021 Credit Agreement, we have a $450.0 million senior secured revolving loan facility with a syndicate of financial institutions that expires in September 2026, the 2021 Revolver. As of March 31, 2024, there were no borrowings outstanding on the 2021 Revolver balance, however we issued a standby letter of credit for $1.2 million that counts against the available 2021 Revolver balance. In April 2024, we borrowed $15.0 million on the 2021 Revolver, for general corporate purposes, currently leaving $433.8 million available to us. The 2021 Credit Agreement contains customary affirmative, negative, and financial covenants. As of March 31, 2024, and the date of this filing, we believe we are in compliance with the provisions of the 2021 Credit Agreement.

Our cash and cash equivalents balances as of the end of the indicated periods were located in the following geographical regions (in thousands):

		March 31, 2024				December 31, 2023
Americas (principally the U.S.)		$	87,718			$	142,515
Europe, Middle East and Africa			22,311				32,974
Asia Pacific			10,781				10,775
Total cash and cash equivalents		$	120,810			$	186,264

We generally have ready access to substantially all of our cash and cash equivalents, but may face limitations on moving cash out of certain foreign jurisdictions due to currency controls and potential negative economic consequences.

As of March 31, 2024 and December 31, 2024, we had $2.9 million, for both periods, of cash restricted as to use primarily to collateralize guarantees and outstanding letters of credit included in our other current and non-current asset balances. In addition, as of March 31, 2024 and December 31, 2023, we had $193.0 million and $274.7 million, respectively, of settlement and merchant reserve assets which are deemed restricted due to 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 we intend to continue to do so.

Cash Flows from Operating Activities. We calculate our cash flows from operating activities beginning with net income, adding back the impact of non-cash items or non-operating activity (e.g., depreciation, amortization, impairments, gain/loss on items such as investments, lease modifications, and debt extinguishments/conversions, unrealized foreign currency transactions gain/loss, deferred income taxes, stock-based compensation, etc.), and then factoring in the impact of changes in operating assets and liabilities. See our 2023 10-K for a description of the primary uses and sources of our cash flows from operating activities.

Our cash flows from operating activities, broken out between operations and changes in operating assets and liabilities, for the indicated quarterly periods are as follows (in thousands):

 

		Operations				Changes in Operating Asset and Liabilities				Net Cash Provided by (Used In) Operating Activities – Totals
Cash Flows from Operating Activities:
2024:
March 31 (1)		$	51,655			$	(81,006	)		$	(29,351	)
2023:
March 31 (2)		$	50,158			$	(34,761	)		$	15,397

Variations in our net cash provided by/(used in) operating activities are generally related to the changes in our operating assets and liabilities (related mostly to fluctuations in timing at quarter-end of customer payments, billing milestones, and changes in accrued expenses), and generally over longer periods of time, do not significantly impact our cash flows from operations.

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Significant fluctuations in key operating assets and liabilities between 2024 and 2023 that impacted our cash flows from operating activities are as follows:

Billed Trade Accounts Receivable

Management of our billed trade accounts receivable is one of the primary factors in maintaining strong cash flows from operating activities. These balances include significant billings for several non-revenue items (primarily postage, sales tax, and deferred revenue items). As a result, we evaluate our performance in collecting our billed trade accounts receivable through our calculation of Days Billings Outstanding (“DBO”) rather than a typical Days Sales Outstanding (“DSO”) calculation.

Our gross and net billed trade accounts receivable and related allowance for expected losses (“Allowance”) as of the end of the indicated quarterly periods, and the related DBOs for the quarters then ended, are as follows (in thousands, except DBOs):

 

Quarter Ended		Gross				Allowance				Net Billed				DBOs
2024:
March 31		$	281,051			$	(5,692	)		$	275,359				67
2023:
March 31		$	261,028			$	(5,254	)		$	255,774				68

As of March 31, 2024 and 2023, approximately 95%, for both periods, of our net billed trade accounts receivable balances were less than 60 days past due.

We may experience adverse impacts to our DBOs if and when customer payment delays occur. However, these recurring monthly payments that cross a reporting period-end do not raise collectability concerns, as payment is generally received subsequent to quarter-end. All other changes in our gross and net billed accounts receivable reflect the normal fluctuations in the timing of customer payments at quarter-end, as evidenced by our relatively consistent DBO metric.

As a global provider of solutions and services, a portion of our trade accounts receivable balance relates to international customers. This diversity in the geographic composition of our customer base may adversely impact our DBOs as longer billing cycles (i.e., billing terms and cash collection cycles) are an inherent characteristic of international software and professional services transactions. As a result, we may experience fluctuations in our trade accounts receivable balance as our ability to invoice and collect arrangement fees is dependent upon, among other things: (i) the completion of various customer administrative matters, local country billing protocols and processes (including local cultural differences), and non-customer administrative matters; (ii) meeting certain contractual invoicing milestones and dates; (iii) the overall project status in certain situations in which we act as a subcontractor to another vendor on a project; or (iv) currency controls in certain foreign jurisdictions.

Unbilled Trade Accounts Receivable

Unbilled trade accounts receivable increased $2.1 million to $84.3 million as of March 31, 2024, from $82.2 million as of December 31, 2023. These unbilled trade accounts receivable balances relate primarily to large implementation projects where various milestone and contractual billing dates have not yet been reached or delayed. Unbilled trade accounts receivable are an inherent characteristic of certain software and services transactions and may fluctuate between quarters, as these types of transactions typically have scheduled invoicing terms over several quarters, as well as certain milestone billing events.

Accrued Employee Compensation

Accrued employee compensation decreased $40.4 million to $44.0 million as of March 31, 2024, from $84.4 million as of December 31, 2023, due primarily to the payment of the 2023 employee incentive compensation during the first quarter of 2024 that was fully accrued at December 31, 2023.

Other Current and Non-current Liabilities

Other current and non-current liabilities decreased $11.9 million to $34.5 million as of March 31, 2024, from $46.4 million as of December 31, 2023, primarily due to a decrease of $4.3 million related to accrued interest on our outstanding debt and payments related to the exit of our reseller agreements of $3.8 million.

Cash Flows From Investing Activities. Our typical investing activities consist of purchases of software, property, and equipment, which are discussed below.

Purchases of Software, Property, and Equipment

Our capital expenditures for the first quarters of 2024 and 2023 for software, property, and equipment were $4.8 million and $8.7 million, respectively, and consisted principally of investments in: (i) software and related equipment; and (ii) computer hardware.

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Cash Flows From Financing Activities. Our financing activities typically consist of activities with our common stock, various debt-related transactions, and settlement and merchant reserve activity.

Cash Dividends Paid on Common Stock

During the first quarters of 2024 and 2023, our Board approved dividends totaling $8.9 million and $8.8 million, respectively, and we made dividend payments of $9.5 million and $9.1 million, respectively, with the differences between the amount approved and paid attributed to dividends accrued on unvested incentive shares that are paid upon vesting.

Repurchase of Common Stock

During the first quarter of 2024, we repurchased approximately 185,000 shares of our common stock under our Stock Repurchase Program for $9.6 million. We did not make any share repurchases during the first quarter of 2023.

Additionally, outside of our Stock Repurchase Program, during the first quarters of 2024 and 2023, we repurchased from our employees and then canceled approximately 159,000 and 166,000 shares of our common stock, respectively, for $8.5 million and $9.3 million, respectively, in connection with minimum tax withholding requirements resulting from the vesting of restricted stock under our stock incentive plans.

Through the first quarters of 2024 and 2023, we have paid $18.0 million and $9.3 million, respectively, for our total repurchases of common stock, with any differences when compared to the amounts purchased attributed to the timing of the settlement.

See Note 9 to our Financial Statements for additional discussion of our repurchases of common stock.

Long-Term Debt

During the first quarters of 2024 and 2023, we made principal repayments on our 2021 Term Loan of $1.9 million during each period. Additionally, during the first quarter of 2023, we borrowed $30.0 million from our 2021 Revolver for general corporate purposes.

See Note 4 to our Financial Statements for additional discussion of our long-term debt.

Settlement and Merchant Reserve Activity

During the first quarters of 2024 and 2023, we had net settlement and merchant reserve activity of $82.2 million and $61.5 million, respectively, related to the cash collected, held on behalf, and paid to our merchants related to our payments services and the net change in deposits held on behalf of our merchants. These balances can significantly fluctuate between periods due to activity at the end of the period and the day in which the period ends.

See Note 2 to our Financial Statements for additional discussion of our settlement and merchant reserves.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are mainly limited to money transmitter bonds, performance bonds, and a standby letter of credit. These arrangements do not have a material impact and are not reasonably likely to have a material future impact to our financial condition, results of operations, liquidity, capital expenditures, or capital resources. See Note 7 to our Financial Statements for additional information on these guarantees.

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Capital Resources

The following are the key items to consider in assessing our sources and uses of capital resources:

Current Sources of Capital Resources. Below are the key items to consider in assessing our current sources of capital resources:

Uses/Potential Uses of Capital Resources. Below are the key items to consider in assessing our uses/potential uses of capital resources:

Under our Stock Repurchase Program, we may repurchase shares in the open market or in privately negotiated transactions, including through an accelerated stock repurchase plan or under a SEC Rule 10b5-1 plan. The actual timing and amount of share repurchases are dependent on the current market conditions and other business-related factors. Our common stock repurchases are discussed in more detail in Note 9 to our Financial Statements.

During the first quarter of 2024, we repurchased approximately 185,000 shares of our common stock for $9.6 million (weighted-average price of $51.96 per share).

Outside of our Stock Repurchase Program, during the first quarter of 2024, we repurchased from our employees and then cancelled approximately 159,000 shares of our common stock for $8.5 million in connection with minimum tax withholding requirements resulting from the vesting of restricted common stock under our stock incentive plans.

On April 1, 2024, we acquired certain assets of a customer communication services business that operates in multiple industry verticals for a purchase price of $11.5 million, subject to customary working capital adjustments.

Our acquisitions are discussed in more detail in Note 5 to our Financial Statements. As part of our growth strategy, we are continually evaluating potential business and/or asset acquisitions and investments in market share expansion with our existing and potential new customers and expansion into verticals outside the global communications market.

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The stock warrants are discussed in more detail in Note 9 to our Financial Statements.

2023 Convertible Notes. The 2023 Convertible Notes are convertible at the option of the note holders before June 15, 2028 upon the occurrence of certain events, however, there are no scheduled conversion triggers over the next twelve months. As a result, we expect our required debt service cash outlay during the next twelve months for the 2023 Convertible Notes to be limited to interest payments of $16.5 million.

2021 Credit Agreement. The mandatory repayments under our 2021 Credit Agreement for the next twelve months are $7.5 million and the cash interest expense (based upon then-current interest rates) for the 2021 Term Loan and 2021 Revolver (to include the $15.0 million that was borrowed in April 2024, assuming no further amounts are borrowed, and the amount is not paid down) is $9.9 million. We have the ability to make prepayments without penalties on our 2021 Credit Agreement.

Our long-term debt obligations are discussed in more detail in Note 4 to our Financial Statements.

In summary, we expect to continue to have material needs for capital resources going forward, as noted above. We believe that our current cash and cash equivalents balances and our 2021 Revolver, together with cash expected to be generated in the future from our current operating activities, will be sufficient to meet our anticipated capital resource requirements for at least the next twelve months. We believe we could obtain additional capital through other debt sources which may be available to us if deemed appropriate.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices. As of March 31, 2024, we are exposed to various market risks, including changes in interest rates, fluctuations and changes in the market value of our cash equivalents and settlement and merchant reserve assets, and changes in foreign currency exchange rates. We have not historically entered into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk

Long-Term Debt. The interest rate on our 2023 Convertible Notes is fixed, and thus, as it relates to our convertible debt borrowings, we are not exposed to changes in interest rates.

The interest rates on our 2021 Credit Agreement are based upon an adjusted SOFR rate (including 0.10% credit spread adjustment) plus an applicable margin, or an ABR plus an applicable margin. See Note 4 to our Financial Statements for further details related to our long-term debt.

A hypothetical adverse change of 10% in the March 31, 2024 adjusted SOFR rate would not have a material impact upon our results of operations.

Market Risk

Cash and Cash Equivalents. Our cash and cash equivalents as of March 31, 2024 and December 31, 2023 were $120.8 million and $186.3 million, respectively. Certain of our cash balances are swept into overnight money market accounts on a daily basis, and at times, any excess funds are invested in low-risk, somewhat longer term, cash equivalent instruments. Our cash equivalents are invested primarily in institutional money market funds held at major banks. We have minimal market risk for our cash and cash equivalents due to the relatively short maturities of the instruments.

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Settlement and Merchant Reserve Assets. We are exposed to market risk associated with cash held on behalf of our merchants related to our payment processing services. As of March 31, 2024 and December 31, 2023, we had $193.0 million and $274.7 million, respectively, of cash collected on behalf of our merchants. The cash is held in accounts with various major financial institutions in the U.S. and Canada in an amount equal to at least 100% of the aggregate amount owed to our merchants. These balances can significantly fluctuate between periods due to activity at the end of the period and the day in which the period ends. Certain settlement assets are swept into overnight money market accounts on a daily basis.

Long-Term Debt. The fair value of our convertible debt is exposed to market risk. We do not carry our convertible debt at fair value but present the fair value for disclosure purposes (see Note 2 to our Financial Statements). Generally, the fair value of our convertible debt is impacted by changes in interest rates and changes in the price and volatility of our common stock. As of March 31, 2024, the fair value of the 2023 Convertible Notes was estimated at $420.9 million, using quoted market prices.

Foreign Currency Exchange Rate Risk

Due to foreign operations around the world, our financial statements are exposed to foreign currency exchange risk due to the fluctuations in the value of currencies in which we conduct business. Our principal currency exposures include the British Pound, Euro, Australian Dollar, Saudi Riyal, and South African Rand. While we attempt to maximize natural hedges by incurring expenses in the same currency in which we contract revenue, the related expenses for that revenue could be in one or more differing currencies than the revenue stream. In particular, if the U.S. Dollar were to strengthen it would reduce the reported amount of our foreign-denominated cash, cash equivalents, trade receivables, total revenues and total expenses that we translate into U.S. Dollars and report in our consolidated financial statements for, and as of the end of, each reporting period.

During the first quarter of 2024, we generated approximately 89% of our revenue in U.S. dollars. We expect that, in the foreseeable future, we will continue to generate a very large percentage of our revenue in U.S. dollars.

We have analyzed our foreign currency exposure as of March 31, 2024. A hypothetical adverse change of 10% in the March 31, 2024 exchange rates would not have had a material impact upon our results of operations.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

As required by Rule 13a-15(b), our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation as of the end of the period covered by this report of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e). Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Internal Control Over Financial Reporting

As required by Rule 13a-15(d), our management, including the CEO and CFO, also conducted an evaluation of our internal control over financial reporting, as defined by Rule 13a-15(f), to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, the CEO and CFO concluded that there has been no such change during the quarter covered by this report.

 

 

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CSG SYSTEMS INTERNATIONAL, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time-to-time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. In the opinion of our management, we are not presently a party to any material pending or threatened legal proceedings.

Item 1A. Risk Factors

A discussion of our risk factors can be found in Item 1A. Risk Factors in our 2023 10-K. There were no material changes to the risk factors disclosed in our 2023 10-K during the first quarter of 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to purchases of our common stock made during the first quarter of 2024 by CSG Systems International, Inc. or any “affiliated purchaser” of CSG Systems International, Inc., as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended.

Period		Total Number of Shares Purchased (1) (2)				Average Price Paid Per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)				Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (2)
January 1 - January 31			69,891			$	52.05				63,000			$	92,490,750
February 1 - February 29			101,128				52.38				61,500				89,303,392
March 1 - March 31			172,518				53.57				60,000			$	86,173,096
Total			343,537			$	52.91				184,500

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

(c) Rule 10b5-1 Trading Plans

During the first quarter of 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

Item 6. Exhibits

The Exhibits filed or incorporated by reference herewith are as specified in the Exhibit Index.

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CSG SYSTEMS INTERNATIONAL, INC.

EXHIBIT INDEX

Exhibit Number		Description
10.28D		Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC
10.28E		Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC
10.85		Forms of Agreement for Equity Compensation
31.01		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

* Portions of the exhibit have been omitted pursuant to SEC rules regarding confidential information.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 2, 2024

 

CSG SYSTEMS INTERNATIONAL, INC.

/s/ Brian A. Shepherd

Brian A. Shepherd

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Hai Tran

Hai Tran

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

/s/ Lori J. Szwanek

Lori J. Szwanek

Chief Accounting Officer

(Principal Accounting Officer)

 

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