PART I [Business Overview](index=3&type=section&id=Item%201.%20Business) CSG is a global leader in revenue management, customer experience, and payment solutions, serving diverse industries with a focus on digital transformation and cloud-based services - CSG Systems International, Inc. is a leading global provider of revenue management, customer experience, and payment solutions, with over **35 years of experience**[9](index=9&type=chunk) - The company's solutions are built on a combination of on-premise, public, and private cloud platforms, and managed services models[10](index=10&type=chunk) - Key market trends driving demand for CSG's solutions include increasing consumer choice, a changing competitive landscape with digital native providers, rapid technological advancements (AI, IoT, 5G, cloud), and the need for new revenue sources for Communications Service Providers (CSPs)[13](index=13&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk) - CSG's strategic focus includes driving profitable growth through long-term client relationships, leading with technology innovation, delivering an exceptional customer experience, and attracting and retaining talent[21](index=21&type=chunk) Client Revenue Contribution (Millions) | Client | 2019 Revenue (Millions) | 2019 % of Total Revenues | 2018 Revenue (Millions) | 2018 % of Total Revenues | | :----- | :---------------------- | :----------------------- | :---------------------- | :----------------------- | | Comcast | $229 | 23% | $221 | 25% | | Charter | $195 | 20% | $179 | 20% | Research and Development Expenses (Millions) | Metric | 2019 (Millions) | 2018 (Millions) | | :----- | :-------------- | :-------------- | | R&D Expenses | $128.0 | $124.0 | | % of Total Revenues | 13% | 14% | - The company's solutions and services encompass robust, integrated real-time revenue management, comprehensive customer experience tools (processing over **1.5 billion messages annually**), advanced cloud-based payment processing, and managed services for operational efficiency[27](index=27&type=chunk)[28](index=28&type=chunk) - CSG competes with independent providers (e.g., Amdocs Limited, NEC Corporation), network equipment providers (e.g., Ericsson, Huawei), and client-developed internal solutions[34](index=34&type=chunk) - As of December 31, 2019, CSG had **4,339 employees**, an increase of **374** from 2018[37](index=37&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from client concentration, system security, data privacy, acquisition integration, rapid technological changes, and global operational challenges - CSG derives over **40% of its revenues** from its two largest clients, Comcast and Charter, making it highly susceptible to changes in these relationships[45](index=45&type=chunk) - The company's solutions are mission-critical and rely on various computing environments and networks, making them vulnerable to extended interruptions, outages, or security breaches, including cyber-attacks and identity theft[48](index=48&type=chunk)[50](index=50&type=chunk) - Processing confidential and personally identifiable information (PII) exposes CSG to data privacy laws (e.g., GDPR, CCPA) and the risk of security breaches, which could lead to contractual liability, fines, and reputational damage[52](index=52&type=chunk) - Acquisitions, a part of CSG's growth strategy, involve risks such as integration difficulties, failure to achieve financial targets, and diversion of management attention[57](index=57&type=chunk) - Dependence on the global communications industry means CSG is impacted by market conditions, industry consolidation (potentially leading to fewer, more powerful clients), and increased competition from traditional and digital native providers[59](index=59&type=chunk)[60](index=60&type=chunk) - The market for business support solutions is characterized by rapid technological changes, requiring continuous R&D investment and posing risks related to solution development, integration, and market acceptance[63](index=63&type=chunk)[65](index=65&type=chunk) - Operating globally subjects CSG to risks including compliance with U.S. and international anti-corruption laws (FCPA), economic sanctions (OFAC), foreign currency fluctuations, and reduced intellectual property protection in some countries[78](index=78&type=chunk)[80](index=80&type=chunk)[82](index=82&type=chunk) - The use of open-source software carries risks of intellectual property claims or the need for costly software re-engineering[83](index=83&type=chunk) [Unresolved Staff Comments](index=15&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are reported - No unresolved staff comments[90](index=90&type=chunk) [Properties](index=15&type=section&id=Item%202.%20Properties) As of December 31, 2019, CSG operated over 25 leased global sites, totaling over **650,000 square feet**, including its Colorado headquarters and four production facilities - As of December 31, 2019, CSG operated in over **25 leased sites worldwide**, encompassing over **650,000 square feet**[91](index=91&type=chunk) - Facilities are used for client services, training, support, product/operations support, systems/programming, professional services, R&D, sales/marketing, and general/administrative functions[92](index=92&type=chunk) - The company leases four statement production and mailing facilities in Omaha, Crawfordville, Austin, and Fort Worth[93](index=93&type=chunk) [Legal Proceedings](index=15&type=section&id=Item%203.%20Legal%20Proceedings) CSG is not currently a party to any material pending or threatened legal proceedings, despite routine operational litigation - CSG is not presently a party to any material pending or threatened legal proceedings[95](index=95&type=chunk) [Mine Safety Disclosures](index=15&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to CSG Systems International, Inc. - Not applicable[96](index=96&type=chunk) [Executive Officers of the Registrant](index=16&type=section&id=Executive%20Officers%20of%20the%20Registrant) Key executive officers include Bret C. Griess (President and CEO), Rolland B. Johns (EVP and CFO), Brian A. Shepherd (EVP and Group President), and Kenneth M. Kennedy (EVP, President of Technology and Product) - Key executive officers are Bret C. Griess (President and CEO), Rolland B. Johns (EVP and CFO), Brian A. Shepherd (EVP and Group President), and Kenneth M. Kennedy (EVP, President of Technology and Product)[98](index=98&type=chunk) - Bret C. Griess has served as President and CEO since January 2016, having joined the company in 1996[99](index=99&type=chunk) - Rolland B. Johns became EVP and CFO in May 2018, overseeing finance, accounting, and treasury[100](index=100&type=chunk) - Brian A. Shepherd leads the global profit and loss organization as EVP and Group President since October 2017[101](index=101&type=chunk) - Kenneth M. Kennedy, President of Technology and Product since October 2017, oversees all product development, management, architecture, and operations[102](index=102&type=chunk) [Board of Directors of the Registrant](index=17&type=section&id=Board%20of%20Directors%20of%20the%20Registrant) The Board of Directors includes Donald B. Reed (non-executive Chairman), Bret C. Griess (President and CEO), and diverse independent directors from finance, technology, and telecommunications - Donald B. Reed serves as the non-executive Chairman of the Board since January 2010[105](index=105&type=chunk) - The Board includes a mix of experienced professionals from various industries, including finance, engineering, and telecommunications[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Haiyan Song was appointed to the Board in January 2020, bringing expertise in security markets and computer science[115](index=115&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) CSG's common stock is listed on NASDAQ as 'CSGS', with details on stock performance, equity compensation plans, and issuer share repurchases - CSG's common stock is listed on NASDAQ under the symbol '**CSGS**'[119](index=119&type=chunk) Comparative Stock Performance | Year | CSG Systems International, Inc. | Russell 2000 Index | Data Preparation and Processing Services | | :--- | :------------------------------ | :----------------- | :--------------------------------------- | | 2014 | $100.00 | $100.00 | $100.00 | | 2015 | $146.72 | $95.59 | $110.52 | | 2016 | $200.85 | $115.95 | $129.67 | | 2017 | $185.42 | $132.94 | $159.46 | | 2018 | $137.31 | $118.30 | $174.32 | | 2019 | $227.96 | $148.49 | $245.10 | Equity Compensation Plan Information (Thousands) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights | Weighted-average exercise price of outstanding options, warrants, and rights | Number of securities remaining available for future issuance | | :------------ | :--------------------------------------------------------------------------------------- | :--------------------------------------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plans approved by security holders | — | $— | 3,660,880 | - As of December 31, 2019, **3,438,620 shares** are available for stock-based awards and **222,260 shares** for the employee stock purchase plan[123](index=123&type=chunk) Issuer Purchases of Equity Securities (Thousands) | Period | Total Number of Shares Purchased (1)(2) | Average Price Paid Per Share | Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Programs (2) | | :----- | :-------------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------ | | October 1 - October 31 | 37,679 | $51.42 | 36,800 | 5,015,967 | | November 1 - November 30 | 28,160 | $56.98 | 24,000 | 4,991,967 | | December 1 - December 31 | 31,314 | $54.08 | 30,400 | 4,961,567 | | Total | 97,153 | $53.89 | 91,200 | | [Selected Financial Data](index=21&type=section&id=Item%206.%20Selected%20Financial%20Data) CSG's five-year selected financial data shows consistent revenue growth, increased operating income and diluted EPS, stable dividends, active share repurchases, and growing assets Statements of Income Data (Thousands, Except Per Share Amounts) | Statements of Income Data (in thousands, except per share amounts) | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Revenues | $996,810 | $875,059 | $789,582 | $760,958 | $752,520 | | Operating income | $126,109 | $104,932 | $105,685 | $132,629 | $113,140 | | Net income | $82,770 | $66,130 | $61,364 | $62,882 | $62,567 | | Diluted net income per common share | $2.55 | $2.01 | $1.87 | $1.90 | $1.87 | | Dividend declared per share | $0.89 | $0.84 | $0.79 | $0.74 | $0.70 | Key Capital Activities (Thousands) | Key Capital Activities (in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------------------ | :------ | :------ | :------ | :------ | :------ | | Shares repurchased under Stock Repurchase Program | 576 | 704 | 500 | 318 | 1,838 | | Cost of shares repurchased under Stock Repurchase Program | $25,457 | $27,628 | $20,548 | $11,565 | $56,959 | | Dividends declared | $29,445 | $28,148 | $26,823 | $23,753 | $22,852 | Balance Sheet Data (Thousands) | Balance Sheet Data (at Period End, in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :----------------------------------------------- | :------------ | :------------ | :------------ | :------------ | :------------ | | Cash, cash equivalents and short-term investments | $182,657 | $162,880 | $261,360 | $276,498 | $240,936 | | Total assets | $1,283,030 | $1,114,362 | $904,534 | $891,879 | $862,731 | | Total debt | $356,822 | $359,826 | $331,736 | $416,260 | $279,130 | | Total stockholders' equity | $396,662 | $361,024 | $342,746 | $251,360 | $345,845 | - The 2019 results include a full twelve months of operations from the Business Ink and Forte acquisitions (2018 acquisitions), contributing approximately **$165 million to revenue**[129](index=129&type=chunk) - In 2019, CSG adopted ASU 2016-02 (Leases), recognizing lease liabilities and right-of-use assets, which materially grossed up the balance sheet but did not materially impact the income statement or cash flows[131](index=131&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details CSG's financial performance, including a **14% revenue increase** in 2019 driven by acquisitions and cloud solutions, strong liquidity, and critical accounting policies requiring significant judgment [Forward-Looking Statements](index=23&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements based on assumptions about future plans and industry expectations, subject to risks and uncertainties outlined in Item 1A, 'Risk Factors'[133](index=133&type=chunk) [Acquisition Activity](index=23&type=section&id=Acquisition%20Activity) - In 2018, CSG acquired Business Ink (February 28) and Forte Payment Systems, Inc. (October 1), impacting year-over-year results due to timing[134](index=134&type=chunk) - On January 2, 2020, CSG acquired certain assets of Tekzenit, Inc. for an initial purchase price of approximately **$10 million**, with potential earn-out payments up to an additional **$10 million**[135](index=135&type=chunk) - Tekzenit is expected to contribute approximately **$10 million to 2020 revenues** and be neutral to slightly accretive to operating results[135](index=135&type=chunk) [Impact of New Lease Accounting Pronouncement](index=23&type=section&id=Impact%20of%20New%20Lease%20Accounting%20Pronouncement) - CSG adopted ASC 842 (Leases) in January 2019, resulting in a material gross-up of Balance Sheet assets and liabilities (approximately **$80 million**) but no material impact on the Income Statement or Statement of Cash Flows[137](index=137&type=chunk) [Management Overview](index=24&type=section&id=Management%20Overview) Key Financial Metrics (Thousands) | Metric | 2019 (Thousands) | 2018 (Thousands) | Change (%) | | :----- | :--------------- | :--------------- | :--------- | | Revenues | $996,810 | $875,059 | 14% | | Transaction fees | $69,114 | $15,602 | 343% | | Operating income | $126,109 | $104,932 | 20.2% | | Operating income margin | 12.7% | 12.0% | 0.7 pp | | Diluted EPS | $2.55 | $2.01 | 26.9% | | Restructuring and reorganization charges | $4,834 | $8,661 | -44.1% | | Amortization of acquired intangible assets | $12,603 | $9,699 | 29.9% | | Earn-out compensation | $1,260 | $1,260 | 0% | | Transaction-related costs | $- | $3,653 | -100% | | Stock-based compensation | $20,896 | $19,650 | 6.3% | | Amortization of OID | $2,819 | $2,664 | 5.8% | - 2019 revenues increased by **14% to $996.8 million**, primarily due to an additional **$91 million** from the full-year impact of Business Ink and Forte acquisitions, and growth in cloud solutions and managed services[141](index=141&type=chunk) - Operating income increased to **$126.1 million (12.7% margin)** in 2019 from **$104.9 million (12.0% margin)** in 2018, driven by higher revenues[142](index=142&type=chunk) - Diluted EPS rose to **$2.55** in 2019 from **$2.01** in 2018, also benefiting from a lower effective income tax rate due to a **$4 million net income tax benefit** from Comcast's stock warrant exercise[143](index=143&type=chunk) - Cash, cash equivalents, and short-term investments increased to **$182.7 million** as of December 31, 2019, from **$162.9 million** in 2018. Cash flows from operating activities increased to **$151.1 million** in 2019 from **$143.3 million** in 2018[143](index=143&type=chunk) [Significant Client Relationships](index=25&type=section&id=Significant%20Client%20Relationships) Client Revenue Contribution (Millions) | Client | 2019 Revenue (Millions) | 2019 % of Total Revenues | 2018 Revenue (Millions) | 2018 % of Total Revenues | | :----- | :---------------------- | :----------------------- | :---------------------- | :----------------------- | | Comcast | $229 | 23% | $221 | 25% | | Charter | $195 | 20% | $179 | 20% | - A new Master Subscriber Management System Agreement with Comcast, effective January 1, 2020, extends the contractual relationship through December 31, 2024, for cloud services and December 31, 2025, for print and mail services[145](index=145&type=chunk) - The new Comcast agreement includes overall pricing adjustments of approximately **10%**, which will reduce fees received from Comcast[146](index=146&type=chunk) - The agreement with Charter runs through December 31, 2021, with an option for a one-year extension[147](index=147&type=chunk) [Stock-Based Compensation Expense](index=25&type=section&id=Stock-Based%20Compensation%20Expense) Stock-Based Compensation Expense by Category (Thousands) | Category | 2019 (Thousands) | 2018 (Thousands) | 2017 (Thousands) | | :------- | :--------------- | :--------------- | :--------------- | | Cloud and related solutions | $3,624 | $3,568 | $3,573 | | Software and services | $893 | $904 | $895 | | Maintenance | $67 | $64 | $357 | | Research and development | $2,657 | $2,483 | $3,103 | | Selling, general and administrative | $13,655 | $12,631 | $12,854 | | Restructuring | $(977) | $(292) | $267 | | Total stock-based compensation expense | $19,919 | $19,358 | $21,049 | [Amortization of Acquired Intangible Assets](index=26&type=section&id=Amortization%20of%20Acquired%20Intangible%20Assets) Amortization Expense by Category (Thousands) | Category | 2019 (Thousands) | 2018 (Thousands) | 2017 (Thousands) | | :------- | :--------------- | :--------------- | :--------------- | | Cloud and related solutions | $9,048 | $5,229 | $1,065 | | Maintenance | $3,555 | $4,470 | $5,799 | | Total amortization expense | $12,603 | $9,699 | $6,864 | - The increase in amortization of acquired intangible assets in 2019 is due to the full-year impact of intangible assets acquired with the Business Ink and Forte acquisitions in 2018[151](index=151&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) - Critical accounting policies include revenue recognition, impairment assessments of long-lived assets, income taxes, and loss contingencies, all requiring significant management judgments and estimates[153](index=153&type=chunk) - Revenue recognition under ASC 606 involves complex judgments for cloud-based solutions, software licenses, and bundled arrangements, particularly in identifying performance obligations, determining transaction prices (including variable consideration), and allocating value[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) - Impairment assessments of long-lived assets (property, equipment, software, client contracts) require highly subjective judgments on estimated future undiscounted cash flows and fair value[161](index=161&type=chunk) - Income tax accounting involves estimating liabilities across multiple jurisdictions, assessing the realization of deferred tax assets (with valuation allowances), and determining unrecognized tax benefits, including the complex calculation of R&D tax credits[162](index=162&type=chunk)[163](index=163&type=chunk)[165](index=165&type=chunk) - Loss contingencies require assessing the likelihood and estimating the amount of potential losses from legal, regulatory, vendor, service delivery, and labor matters[166](index=166&type=chunk) [Detailed Discussion of Results of Operations](index=28&type=section&id=Detailed%20Discussion%20of%20Results%20of%20Operations) - Total revenues for 2019 increased **14% to $996.8 million** from **$875.1 million** in 2018, primarily due to the full-year impact of Business Ink and Forte acquisitions (additional **$91 million**) and growth in cloud solutions and managed services[168](index=168&type=chunk) Revenue by Type (Thousands) | Revenue Type | 2019 (Thousands) | 2018 (Thousands) | 2017 (Thousands) | | :----------- | :--------------- | :--------------- | :--------------- | | Cloud and related solutions | $896,164 | $766,377 | $651,010 | | Software and services | $52,364 | $58,101 | $62,892 | | Maintenance | $48,282 | $50,581 | $75,680 | | Total revenues | $996,810 | $875,059 | $789,582 | - Cloud and related solutions revenues increased **17%** in 2019, driven by acquisitions and existing cloud/managed services arrangements. Software and services revenues decreased **10%**, and maintenance revenues decreased **5%**, reflecting a strategic shift towards recurring managed services and cloud-based solutions[169](index=169&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) - Total operating expenses increased **13% to $870.7 million** in 2019, with over **85%** of the increase attributed to the full-year impact of Business Ink and Forte operating expenses, including **$53.5 million** in transaction fees and **$3.8 million** in acquisition amortization[176](index=176&type=chunk) Cost of Revenues (Exclusive of Depreciation) (Thousands) | Cost of Revenues (Exclusive of Depreciation) | 2019 (Thousands) | 2018 (Thousands) | 2017 (Thousands) | | :------------------------------------------- | :--------------- | :--------------- | :--------------- | | Cloud and related solutions | $472,391 | $392,801 | $315,006 | | Software and services | $31,719 | $34,870 | $39,018 | | Maintenance | $21,012 | $22,149 | $40,787 | | Total cost of revenues | $525,122 | $449,820 | $394,811 | - R&D expense increased **3% to $128.0 million** in 2019, mainly due to the acquired Forte business, representing **12.8% of total revenues** (down from **14.2%** in 2018)[186](index=186&type=chunk)[188](index=188&type=chunk) - SG&A expense increased **13% to $191.3 million** in 2019, primarily due to the acquired Forte business and increased employee-related costs, remaining stable at **19.2% of total revenues**[189](index=189&type=chunk) - Depreciation expense increased **17% to $21.4 million** in 2019, driven by acquired assets from Business Ink and Forte, and higher capital expenditures in 2018[190](index=190&type=chunk) - Restructuring and reorganization charges decreased to **$4.8 million** in 2019 from **$8.7 million** in 2018, reflecting workforce reductions and facility abandonments[191](index=191&type=chunk) - Operating income for 2019 was **$126.1 million (12.7% margin)**, up from **$104.9 million (12.0% margin)** in 2018, primarily due to higher revenues[192](index=192&type=chunk) Effective Income Tax Rate | Income Tax Provision | 2019 | 2018 | 2017 | | :------------------- | :--- | :--- | :--- | | Effective Tax Rate | 22% | 24% | 30% | - The 2019 effective income tax rate was positively impacted by an approximately **$4 million net income tax benefit** from Comcast's exercise of stock warrants[195](index=195&type=chunk) [Liquidity](index=31&type=section&id=Liquidity) - As of December 31, 2019, CSG had **$182.7 million** in cash, cash equivalents, and short-term investments, up from **$162.9 million** in 2018[198](index=198&type=chunk) - The 2018 Credit Agreement refinancing increased liquidity by approximately **$30 million** and includes a **$200 million revolving loan facility**, which had no outstanding borrowings as of December 31, 2019[199](index=199&type=chunk)[200](index=200&type=chunk) Cash, Cash Equivalents and Short-Term Investments by Geographical Region (Thousands) | Geographical Region | December 31, 2019 (Thousands) | December 31, 2018 (Thousands) | | :------------------ | :---------------------------- | :---------------------------- | | Americas | $125,309 | $110,385 | | Europe, Middle East and Africa | $50,477 | $45,884 | | Asia Pacific | $6,871 | $6,611 | | Total | $182,657 | $162,880 | - Cash flows from operating activities increased to **$151.1 million** in 2019 from **$143.3 million** in 2018, primarily driven by recurring revenue from cloud-based and managed services[203](index=203&type=chunk)[206](index=206&type=chunk) Gross Billed Trade Accounts Receivable (Thousands) | Quarter Ended | Gross Billed Trade Accounts Receivable (Thousands) | Allowance (Thousands) | Net Billed (Thousands) | DBOs | | :------------ | :----------------------------------------------- | :-------------------- | :--------------------- | :--- | | 2019: | | | | | | March 31 | $247,833 | $(2,897) | $244,936 | 65 | | June 30 | $268,656 | $(2,861) | $265,795 | 67 | | September 30 | $245,972 | $(3,356) | $242,616 | 67 | | December 31 | $247,793 | $(3,735) | $244,058 | 63 | | 2018: | | | | | | March 31 | $217,018 | $(3,967) | $213,051 | 70 | | June 30 | $243,874 | $(3,961) | $239,913 | 67 | | September 30 | $250,913 | $(4,182) | $246,731 | 68 | | December 31 | $238,942 | $(3,115) | $235,827 | 66 | - Purchases of software, property, and equipment were **$37.3 million** in 2019, down from **$57.1 million** in 2018[217](index=217&type=chunk) - CSG repurchased **576,000 shares** of common stock for **$25.5 million** in 2019 under its Stock Repurchase Program, and an additional **117,000 shares** for **$5.1 million** for tax withholdings[221](index=221&type=chunk)[222](index=222&type=chunk) - Cash dividends paid totaled **$29.1 million** in 2019[224](index=224&type=chunk) - Comcast exercised **0.4 million** vested common stock warrants in Q4 2019, resulting in a net cash settlement of **$12.9 million**[225](index=225&type=chunk) - Principal repayments on long-term debt were **$7.5 million** in 2019[227](index=227&type=chunk) [Contractual Obligations and Other Commercial Commitments and Contingencies](index=35&type=section&id=Contractual%20Obligations%20and%20Other%20Commercial%20Commitments%20and%20Contingencies) Contractual Obligations (Thousands) | Obligation Type | Total (Thousands) | Less than 1 Year (Thousands) | Years 2-3 (Thousands) | Years 4-5 (Thousands) | More than 5 Years (Thousands) | | :-------------- | :---------------- | :--------------------------- | :-------------------- | :-------------------- | :---------------------------- | | Long-term debt | $542,707 | $25,164 | $57,402 | $117,728 | $342,413 | | Facility and equipment leases | $105,839 | $17,749 | $35,229 | $27,952 | $24,909 | | Purchase obligations | $376,799 | $84,563 | $130,680 | $107,945 | $53,611 | | Total | $1,025,345 | $127,476 | $223,311 | $253,625 | $420,933 | - Approximately **$490 million** of total contractual obligations and commercial commitments are reflected on the Balance Sheet[233](index=233&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) - CSG has no off-balance sheet arrangements[234](index=234&type=chunk) [Capital Resources](index=35&type=section&id=Capital%20Resources) - Current capital sources include **$182.7 million** in cash, cash equivalents, and short-term investments (**64% in U.S. Dollars**), strong operating cash flows, and a **$200 million revolving loan facility** with no outstanding borrowings[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) - Potential uses of capital include common stock repurchases (**5.0 million shares authorized**), cash dividends (expected quarterly), acquisitions (e.g., Tekzenit), equity method investments, capital expenditures, and long-term debt obligations[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - Expected debt service cash outlay for the next twelve months includes **$9.8 million** for 2016 Convertible Notes interest and **$10.3 million** for 2018 Credit Agreement mandatory repayments plus **$5.1 million** in cash interest[248](index=248&type=chunk)[249](index=249&type=chunk) - Management believes current liquidity and future operating cash flows will be sufficient to meet capital requirements for at least the next twelve months, with additional debt sources available if needed[250](index=250&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) CSG faces market risks from interest rate fluctuations, cash equivalent values, and foreign currency exchange rates, mitigated by fixed-rate debt, short-term investments, and natural hedges for U.S. dollar-denominated revenues - CSG's market risks include interest rate risk, market value fluctuations of cash equivalents and short-term investments, and foreign currency exchange rate risk[251](index=251&type=chunk) - The 2016 Convertible Notes have a fixed interest rate, while the 2018 Credit Agreement has variable interest rates based on adjusted LIBOR plus an applicable margin[252](index=252&type=chunk) - Cash and cash equivalents (**$156.6 million** in 2019) and short-term investments (**$26.1 million** in 2019) have minimal market risk due to short maturities and strict investment guidelines[254](index=254&type=chunk)[255](index=255&type=chunk) - Settlement assets (**$169.3 million** in 2019) represent cash held on behalf of clients for payment processing services, held in trust at major financial institutions[256](index=256&type=chunk) - The fair value of the 2016 Convertible Notes was estimated at **$262.8 million** as of December 31, 2019, impacted by interest rates and common stock price/volatility[258](index=258&type=chunk) - Approximately **88% of CSG's revenues** in 2019 were generated in U.S. dollars, and the company attempts to maximize natural hedges for foreign currency exposure[259](index=259&type=chunk)[260](index=260&type=chunk) Foreign Currency Monetary Balances (Thousands) | Currency | December 31, 2019 Monetary Liabilities (Thousands) | December 31, 2019 Monetary Assets (Thousands) | December 31, 2018 Monetary Liabilities (Thousands) | December 31, 2018 Monetary Assets (Thousands) | | :------- | :----------------------------------------------- | :-------------------------------------------- | :----------------------------------------------- | :-------------------------------------------- | | Pounds sterling | $(30) | $1,786 | $(3) | $1,848 | | Euro | $(76) | $11,284 | $(448) | $7,482 | | U.S. Dollar | $(117) | $18,890 | $(632) | $18,044 | | South African Rand | $- | $7,602 | $- | $270 | | Other | $(6) | $1,065 | $(7) | $957 | | Totals | $(229) | $40,627 | $(1,090) | $28,601 | [Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section provides CSG's consolidated financial statements, management's report on internal control, independent auditors' reports, and detailed notes on accounting policies and financial items [Management's Report on Internal Control Over Financial Reporting](index=40&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) - Management is responsible for establishing and maintaining adequate internal control over financial reporting[268](index=268&type=chunk) - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2019, based on COSO criteria, and concluded it was effective[270](index=270&type=chunk) [Reports of Independent Registered Public Accounting Firm](index=41&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - KPMG LLP issued an unqualified opinion on the effectiveness of CSG's internal control over financial reporting as of December 31, 2019[274](index=274&type=chunk) - KPMG LLP also issued an unqualified opinion on the consolidated financial statements for the three-year period ended December 31, 2019[282](index=282&type=chunk) - Critical audit matters included the evaluation of contract modifications with significant clients and the assessment of estimated total expected hours to complete software and services projects, both involving significant auditor judgment[288](index=288&type=chunk)[290](index=290&type=chunk) [Consolidated Balance Sheets](index=44&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (Thousands) | Asset/Liability (in thousands) | December 31, 2019 | December 31, 2018 | | :----------------------------- | :---------------- | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $156,548 | $139,277 | | Short-term investments | $26,109 | $23,603 | | Total cash, cash equivalents and short-term investments | $182,657 | $162,880 | | Settlement assets | $169,327 | $124,627 | | Billed, net of allowance | $244,058 | $235,827 | | Unbilled | $33,450 | $37,227 | | Total current assets | $669,082 | $599,567 | | Property and equipment, net | $84,429 | $81,813 | | Operating lease right-of-use assets | $94,847 | $- | | Software, net | $32,526 | $36,400 | | Goodwill | $259,164 | $255,816 | | Acquired client contracts, net | $55,105 | $65,456 | | Client contract costs, net | $50,746 | $37,289 | | Total non-current assets | $613,948 | $514,795 | | **Total assets** | **$1,283,030** | **$1,114,362** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Current portion of long-term debt | $10,313 | $7,500 | | Operating lease liabilities | $22,442 | $- | | Client deposits | $38,687 | $36,889 | | Trade accounts payable | $32,704 | $45,386 | | Accrued employee compensation | $77,527 | $61,107 | | Settlement liabilities | $168,342 | $123,613 | | Deferred revenue | $45,094 | $40,236 | | Total current liabilities | $418,693 | $350,391 | | Long-term debt, net | $346,509 | $352,326 | | Operating lease liabilities | $78,936 | $- | | Total non-current liabilities | $467,675 | $402,947 | | **Total liabilities** | **$886,368** | **$753,338** | | Common stock | $696 | $693 | | Common stock warrants | $- | $9,082 | | Additional paid-in capital | $454,663 | $441,417 | | Treasury stock, at cost | $(867,817) | $(842,360) | | Accumulated earnings | $848,623 | $795,127 | | **Total stockholders' equity** | **$396,662** | **$361,024** | | **Total liabilities and stockholders' equity** | **$1,283,030** | **$1,114,362** | [Consolidated Statements of Income](index=45&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income (Thousands, Except Per Share Amounts) | Income Statement (in thousands, except per share amounts) | 2019 | 2018 | 2017 | | :-------------------------------------------------------- | :-------- | :-------- | :-------- | | Revenues | $996,810 | $875,059 | $789,582 | | Cost of revenues (exclusive of depreciation) | $525,122 | $449,820 | $394,811 | | Research and development | $127,994 | $124,034 | $113,215 | | Selling, general and administrative | $191,329 | $169,308 | $153,695 | | Depreciation | $21,422 | $18,304 | $13,380 | | Restructuring and reorganization charges | $4,834 | $8,661 | $8,796 | | Total operating expenses | $870,701 | $770,127 | $683,897 | | Operating income | $126,109 | $104,932 | $105,685 | | Interest expense | $(17,748) | $(17,667) | $(16,794) | | Amortization of original issue discount | $(2,819) | $(2,664) | $(2,790) | | Interest and investment income, net | $1,785 | $2,646 | $3,246 | | Loss on extinguishment of debt | $- | $(810) | $- | | Other, net | $(1,604) | $550 | $(1,637) | | Total other | $(20,386) | $(17,945) | $(17,975) | | Income before income taxes | $105,723 | $86,987 | $87,710 | | Income tax provision | $(22,953) | $(20,857) | $(26,346) | | Net income | $82,770 | $66,130 | $61,364 | | Basic earnings per common share | $2.58 | $2.04 | $1.89 | | Diluted earnings per common share | $2.55 | $2.01 | $1.87 | [Consolidated Statements of Comprehensive Income](index=46&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (Thousands) | Comprehensive Income (in thousands) | 2019 | 2018 | 2017 | | :---------------------------------- | :-------- | :-------- | :-------- | | Net income | $82,770 | $66,130 | $61,364 | | Foreign currency translation adjustments | $3,418 | $(14,203) | $16,479 | | Unrealized holding gains on short-term investments arising during period | $14 | $90 | $71 | | Other comprehensive income (loss), net of tax | $3,432 | $(14,113) | $16,550 | | Total comprehensive income, net of tax | $86,202 | $52,017 | $77,914 | [Consolidated Statements of Stockholders' Equity](index=47&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity increased from **$361.0 million** in 2018 to **$396.7 million** in 2019, driven by net income and stock-based compensation, partially offset by common stock repurchases and dividends[304](index=304&type=chunk) - Key changes in stockholders' equity for 2019 include **$82.8 million** in net income, **$19.9 million** in stock-based compensation expense, **$(30.5) million** in common stock repurchases, and **$(29.3) million** in dividends[304](index=304&type=chunk) - The exercise of common stock warrants by Comcast resulted in a **$(12.9) million** impact to stockholders' equity in 2019[304](index=304&type=chunk) [Consolidated Statements of Cash Flows](index=48&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Thousands) | Cash Flow (in thousands) | 2019 | 2018 | 2017 | | :----------------------- | :-------- | :-------- | :-------- | | Net cash provided by operating activities | $151,076 | $143,341 | $127,195 | | Net cash used in investing activities | $(56,636) | $(86,139) | $(29,904) | | Net cash used in financing activities | $(78,228) | $(37,509) | $(105,494) | | Effect of exchange rate fluctuations on cash | $1,059 | $(2,659) | $4,095 | | Net increase (decrease) in cash and cash equivalents | $17,271 | $17,034 | $(4,108) | | Cash and cash equivalents, beginning of period | $139,277 | $122,243 | $126,351 | | Cash and cash equivalents, end of period | $156,548 | $139,277 | $122,243 | - Cash provided by operating activities increased in 2019, while cash used in investing activities decreased, mainly due to lower acquisition-related payments compared to 2018[308](index=308&type=chunk) - Cash used in financing activities increased in 2019, primarily due to cash settlement of common stock warrants and continued stock repurchases and dividend payments[308](index=308&type=chunk) [Notes to Consolidated Financial Statements](index=49&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. General](index=49&type=section&id=1.%20General) - CSG Systems International, Inc. is a Delaware corporation, formed in October 1994, based in Greenwood Village, Colorado[311](index=311&type=chunk) - The company is a revenue management, customer experience, and payment solutions provider primarily serving the global communications industry, with over **35 years of experience**[311](index=311&type=chunk) [2. Summary of Significant Accounting Policies](index=49&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - Financial statements are prepared in conformity with U.S. GAAP, consolidating all accounts of the company and its subsidiaries[312](index=312&type=chunk)[313](index=313&type=chunk) - Foreign currency translation adjustments are included in comprehensive income, while transaction gains/losses are in net income[314](index=314&type=chunk) - Critical estimates include revenue recognition, impairment assessments of long-lived assets, income taxes, and loss contingencies[315](index=315&type=chunk) - CSG adopted ASC 606 (Revenue from Contracts with Customers) on January 1, 2018, using the cumulative effect method, increasing beginning retained earnings by approximately **$7 million**[316](index=316&type=chunk) - Revenue from cloud and related solutions (SaaS, managed services, payment processing) is primarily variable, based on monthly volumes/usage, and recognized as services are performed[318](index=318&type=chunk)[320](index=320&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk) - Software and services revenues, often bundled, involve complex allocation of consideration based on stand-alone selling prices and an hours-based method for recognizing revenue over time for implementation services[328](index=328&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk) - Maintenance revenues are recognized ratably over the software maintenance period[334](index=334&type=chunk) - As of December 31, 2019, the aggregate transaction price allocated to remaining performance obligations is approximately **$1 billion**, with **80%** expected to be recognized by the end of 2022[335](index=335&type=chunk) Revenue by Type (Thousands) | Revenue Type | 2019 (Thousands) | 2018 (Thousands) | | :----------- | :--------------- | :--------------- | | Cloud and related solutions | $896,164 | $766,377 | | Software and services | $52,364 | $58,101 | | Maintenance | $48,282 | $50,581 | | Total revenues | $996,810 | $875,059 | - Billed accounts receivable represents unconditional rights to consideration, while unbilled accounts receivable is for work completed but not yet billed[339](index=339&type=chunk) - Deferred revenue represents consideration received in advance of services[340](index=340&type=chunk) - Cash equivalents primarily consist of institutional money market funds, commercial paper, and time deposits[341](index=341&type=chunk) Fair Value Measurements (Thousands) | Financial Instrument (in thousands) | December 31, 2019 Level 1 | December 31, 2019 Level 2 | December 31, 2019 Total | December 31, 2018 Level 1 | December 31, 2018 Level 2 | December 31, 2018 Total | | :---------------------------------- | :------------------------ | :------------------------ | :---------------------- | :------------------------ | :------------------------ | :---------------------- | | Cash equivalents: | | | | | | | | Money market funds | $4,847 | $— | $4,847 | $4,392 | $— | $4,392 | | Commercial paper | $— | $26,964 | $26,964 | $— | $9,078 | $9,078 | | Short-term investments: | | | | | | | | Corporate debt securities | $— | $22,159 | $22,159 | $— | $16,357 | $16,357 | | U.S. government agency bonds | $— | $— | $— | $— | $3,724 | $3,724 | | Asset-backed securities | $— | $3,950 | $3,950 | $— | $3,522 | $3,522 | | Total | $4,847 | $53,073 | $57,920 | $4,392 | $32,681 | $37,073 | - CSG is exposed to credit risk in cash deposits, cash equivalents, short-term investments, and accounts receivable, mitigated by monitoring and credit evaluations[350](index=350&type=chunk) Allowance for Doubtful Accounts (Thousands) | Allowance for Doubtful Accounts (in thousands) | 2019 | 2018 | 2017 | | :--------------------------------------------- | :------ | :------ | :------ | | Balance, beginning of year | $3,115 | $4,149 | $3,080 | | Additions to expense | $778 | $462 | $2,434 | | Write-offs | $(158) | $(1,659) | $(1,392) | | Recoveries | $— | $— | $5 | | Other | $— | $163 | $22 | | Balance, end of year | $3,735 | $3,115 | $4,149 | - R&D expenses were **$128.0 million** in 2019, **$124.0 million** in 2018, and **$113.2 million** in 2017; no material R&D costs were capitalized in these periods[356](index=356&type=chunk) - Goodwill is evaluated for impairment annually or more frequently if circumstances indicate potential impairment[358](index=358&type=chunk) Earnings Per Share Denominators (Thousands) | EPS Denominators (in thousands) | 2019 | 2018 | 2017 | | :------------------------------ | :----- | :----- | :----- | | Basic weighted-average common shares | 32,051 | 32,488 | 32,415 | | Dilutive effect of restricted stock | 282 | 218 | 444 | | Dilutive effect of Stock Warrants | 132 | 149 | 6 | | Diluted weighted-average common shares | 32,465 | 32,855 | 32,865 | - CSG made an additional **$4.0 million investment** in a payment technology and services company in 2019, holding an **8% noncontrolling interest** with a carrying value of **$6.6 million**[363](index=363&type=chunk) - Stock-based compensation cost is measured at grant date fair value and recognized over the service period[364](index=364&type=chunk) - CSG adopted ASC 842 (Leases) in January 2019, recognizing right-of-use assets and lease liabilities for leases over twelve months, resulting in an approximately **$80 million balance sheet gross-up**[366](index=366&type=chunk)[367](index=367&type=chunk) [3. Segment Reporting and Significant Concentration](index=55&type=section&id=3.%20Segment%20Reporting%20and%20Significant%20Concentration) - CSG operates as one reportable segment as of December 31, 2019[368](index=368&type=chunk) - The company's solutions and services primarily serve the North American cable and satellite markets with its ACP platform and related solutions, and globally with public cloud revenue management and payments solutions[369](index=369&type=chunk) Revenues by Geographic Region (Thousands) | Geographic Region | 2019 Revenues (Thousands) | 2018 Revenues (Thousands) | 2017 Revenues (Thousands) | | :---------------- | :------------------------ | :------------------------ | :------------------------ | | Americas | $866,831 | $740,885 | $669,712 | | Europe, Middle East and Africa | $91,685 | $89,924 | $72,120 | | Asia Pacific | $38,294 | $44,250 | $47,750 | | Total revenues | $996,810 | $875,059 | $789,582 | - Revenues attributable to operations in the Americas were **87%** in 2019, **85%** in 2018, and **85%** in 2017[370](index=370&type=chunk) Client Revenue Concentration | Client | 2019 % of Total Revenues | 2018 % of Total Revenues | | :----- | :----------------------- | :----------------------- | | Comcast | 23% | 25% | | Charter | 20% | 20% | - As of December 31, 2019 and 2018, Comcast and Charter represented approximately **24%** of net billed accounts receivable balances for both periods[373](index=373&type=chunk) [4. Long-Lived Assets](index=56&type=section&id=4.%20Long-Lived%20Assets) Property and Equipment (Thousands) | Property and Equipment (in thousands) | 2019 | 2018 | | :------------------------------------ | :-------- | :-------- | | Computer equipment | $88,701 | $84,814 | | Leasehold improvements | $25,778 | $22,494 | | Operating equipment | $59,864 | $58,521 | | Furniture and fixtures | $8,115 | $9,262 | | Total | $182,458 | $175,091 | | Less - accumulated depreciation | $(98,029) | $(93,278) | | Property and equipment, net | $84,429 | $81,813 | Goodwill (Thousands) | Goodwill (in thousands) | 2019 | 2018 | | :---------------------- | :-------- | :-------- | | January 1 balance | $255,816 | $210,080 | | Adjustments related to prior acquisitions | $640 | $(60) | | Goodwill acquired during period | $- | $51,591 | | Effects of changes in foreign currency exchange rates | $2,708 | $(5,795) | | December 31 balance | $259,164 | $255,816 | Acquired Client Contracts (Thousands) | Acquired Client Contracts (in thousands) | December 31, 2019 Gross Carrying Amount | December 31, 2019 Accumulated Amortization | December 31, 2019 Net Amount | December 31, 2018 Gross Carrying Amount | December 31, 2018 Accumulated Amortization | December 31, 2018 Net Amount | | :--------------------------------------- | :-------------------------------------- | :----------------------------------------- | :--------------------------- | :-------------------------------------- | :----------------------------------------- | :--------------------------- | | Acquired client contracts | $148,872 | $(93,767) | $55,105 | $148,148 | $(82,692) | $65,456 | - Aggregate amortization for client contracts was **$10.4 million** in 2019, **$7.9 million** in 2018, and **$17.9 million** in 2017[377](index=377&type=chunk) - The weighted-average remaining amortization period for acquired client contracts as of December 31, 2019, was approximately **109 months**[378](index=378&type=chunk) Software Assets (Thousands) | Software Assets (in thousands) | December 31, 2019 Gross Carrying Amount | December 31, 2019 Accumulated Amortization | December 31, 2019 Net Amount | December 31, 2018 Gross Carrying Amount | December 31, 2018 Accumulated Amortization | December 31, 2018 Net Amount | | :----------------------------- | :-------------------------------------- | :----------------------------------------- | :--------------------------- | :-------------------------------------- | :----------------------------------------- | :--------------------------- | | Acquired software | $75,370 | $(68,157) | $7,213 | $75,156 | $(65,719) | $9,437 | | Internal use software | $82,593 | $(57,280) | $25,313 | $80,625 | $(53,662) | $26,963 | | Total software | $157,963 | $(125,437) | $32,526 | $155,781 | $(119,381) | $36,400 | - Aggregate amortization for software was **$12.9 million** in 2019, **$11.3 million** in 2018, and **$9.3 million** in 2017[380](index=380&type=chunk) - The weighted-average remaining amortization period for software intangible assets as of December 31, 2019, was approximately **43 months**[381](index=381&type=chunk) Client Contract Costs (Thousands) | Client Contract Costs (in thousands) | December 31, 2019 Gross Carrying Amount | December 31, 2019 Accumulated Amortization | December 31, 2019 Net Amount | December 31, 2018 Gross Carrying Amount | December 31, 2018 Accumulated Amortization | December 31, 2018 Net Amount | | :----------------------------------- | :-------------------------------------- | :----------------------------------------- | :--------------------------- | :-------------------------------------- | :----------------------------------------- | :--------------------------- | | Client contract incentives | $4,626 | $(1,612) | $3,014 | $28,366 | $(20,833) | $7,533 | | Capitalized costs | $68,085 | $(26,482) | $41,603 | $44,469 | $(20,230) | $24,239 | | Capitalized commission fees | $9,561 | $(3,432) | $6,129 | $7,505 | $(1,988) | $5,517 | | Total client contact costs | $82,272 | $(31,526) | $50,746 | $80,340 | $(43,051) | $37,289 | - Aggregate amortization for client contract costs was **$20.8 million** in 2019 and **$20.8 million** in 2018[383](index=383&type=chunk) [5. Debt](index=59&type=section&id=5.%20Debt) Long-Term Debt (Thousands) | Long-Term Debt (in thousands) | December 31, 2019 | December 31, 2018 | | :---------------------------- | :---------------- | :---------------- | | 2018 Term Loan, net | $135,160 | $142,094 | | 2016 Convertible Notes, net | $221,662 | $217,732 | | Total debt, net | $356,822 | $359,826 | | Current portion of long-term debt, net | $(10,313) | $(7,500) | | Long-term debt, net | $346,509 | $352,326 | - The 2018 Credit Agreement, entered into on March 5, 2018, includes a **$150 million term loan** and a **$200 million revolving loan facility**, both due March 2023[385](index=385&type=chunk) - Interest rates on the 2018 Credit Agreement are variable, based on adjusted LIBOR plus an applicable margin[386](index=386&type=chunk) - CSG made **$7.5 million** in principal repayments on the 2018 Credit Agreement in 2019; no borrowings were outstanding on the 2018 Revolver as of December 31, 2019[388](index=388&type=chunk) - The 2016 Convertible Notes (**$230 million, 4.25% interest**) are due March 15, 2036, convertible at note holders' option under specified conditions, with a conversion rate of **17.5843 shares per $1,000 principal**[391](index=391&type=chunk)[392](index=392&type=chunk) - CSG intends to settle conversion obligations by paying cash for par value and common stock/cash for any excess value[393](index=393&type=chunk) Long-Term Debt Maturities (Thousands) | Long-Term Debt Maturities (in thousands) | 2020 | 2021 | 2022 | 2023 | Total | | :--------------------------------------- | :------ | :------ | :------ | :------ | :------ | | 2018 Term Loan | $10,313 | $14,062 | $15,000 | $97,500 | $136,875 | | 2016 Convertible Notes | $— | $230,000 | $— | $— | $230,000 | | Total long-term debt repayments | $10,313 | $244,062 | $15,000 | $97,500 | $366,875 | - Deferred financing costs of **$1.7 million** for the 2018 Credit Agreement and **$2.3 million** for the 2016 Convertible Notes are amortized to interest expense[399](index=399&type=chunk) - The weighted-average interest rate on debt borrowings was approximately **6%** in 2019, up from **5%** in 2018 and 2017[399](index=399&type=chunk) [6. Leases](index=61&type=section&id=6.%20Leases) - CSG has operating leases for real estate (office, production facilities), outsourced data center environment, and operating equipment, with terms up to eight years and some renewal options[400](index=400&type=chunk) - The company elected not to recognize leases with initial terms of twelve months or less on the balance sheet and, for real estate leases starting in 2019, accounts for lease and non-lease components as a single lease component[401](index=401&type=chunk) Lease Expense (Thousands) | Lease Expense (in thousands) | 2019 | | :--------------------------- | :------ | | Operating lease expense | $24,670 | | Variable lease expense | $4,647 | | Short-term lease expense | $583 | | Sublease income | $(1,710) | | Total net lease expense | $28,190 | - Cash paid for operating lease liabilities was **$24.0 million** in 2019, with right-of-use assets obtained in exchange for new operating lease liabilities totaling **$33.8 million**[403](index=403&type=chunk) - Weighted-average remaining lease term for operating leases is **59 months**, with a weighted-average discount rate of **4.32%**[403](index=403&type=chunk) Future Minimum Lease Payments (Thousands) | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :-------- | | 2020 | $25,976 | | 2021 | $25,134 | | 2022 | $20,251 | | 2023 | $15,097 | | 2024 | $13,848 | | Thereafter | $12,639 | | Total future minimum lease payments | $112,945 | | Less: Interest | $(11,567) | | Total | $101,378 | | Current operating lease liabilities | $22,442 | | Non-current operating lease liabilities | $78,936 | | Total | $101,378 | - An operating lease for office space commencing in 2020 will add approximately **$23 million**, and an upgrade to the outsourced data center processors will increase right-of-use assets and lease liabilities by approximately **$12 million**[406](index=406&type=chunk) [7. Acquisitions](index=62&type=section&id=7.%20Acquisitions) - On February 28, 2018, CSG acquired Business Ink for approximately **$70 million**, expanding operations, platform capabilities, and customer base[408](index=408&type=chunk) - On October 1, 2018, CSG acquired Forte Payment Systems, Inc. for approximately **$93 million**, accelerating payment solutions offerings and strengthening its position in revenue management[409](index=409&type=chunk) - The Forte acquisition included provisions for **$18.8 million** in potential future earn-out payments over a four-year period, with **$2.5 million** accrued as of December 31, 2019[409](index=409&type=chunk) - In January 2020, CSG acquired certain assets of Tekzenit, Inc. for an initial **$10 million**, with potential additional earn-out and sales payments up to **$10 million**, aimed at accelerating go-to-market for customer experience solutions[410](index=410&type=chunk) [8. Restructuring and Reorganization Charges](index=63&type=section&id=8.%20Restructuring%20and%20Reorganization%20Charges) - Restructuring and reorganization charges for 2019, 2018, and 2017 were **$4.8 million**, **$8.7 million**, and **$8.8 million**, respectively[415](index=415&type=chunk) - In 2019, charges included **$2.5 million** for reducing the workforce by approximately **70 employees**, primarily in North America[412](index=412&type=chunk) - In 2018, charges included **$6.2 million** for reducing the workforce by approximately **170 employees** and **$2.7 million** for closing a print facility, partially offset by a **$2.3 million liability reversal**[413](index=413&type=chunk) - As of December 31, 2019, **$0.8 million** of restructuring reserves were included in current liabilities[418](index=418&type=chunk) [9. Income Taxes](index=64&type=section&id=9.%20Income%20Taxes) Income Before Income Taxes (Thousands) | Income Before Income Taxes (in thousands) | 2019 | 2018 | 2017 | | :---------------------------------------- | :-------- | :-------- | :-------- | | Domestic | $99,000 | $80,234 | $89,095 | | Foreign | $6,723 | $6,753 | $(1,385) | | Total | $105,723 | $86,987 | $87,710 | Income Tax Provision (Thousands) | Income Tax Provision (in thousands) | 2019 | 2018 | 2017 | | :---------------------------------- | :-------- | :-------- | :-------- | | Current: | | | | | Federal | $16,616 | $7,814 | $13,422 | | State | $2,910 | $4,589 | $1,909 | | Foreign | $3,519 | $3,541 | $3,903 | | Total Current | $23,045 | $15,944 | $19,234 | | Deferred: | | | | | Federal | $(1,943) | $4,584 | $5,582 | | State | $624 | $(619) | $937 | | Foreign | $1,227 | $948 | $593 | | Total Deferred | $(92) | $4,913 | $7,112 | | Total income tax provision | $22,953 | $20,857 | $26,346 | - The effective income tax rates were **22%** in 2019, **24%** in 2018, and **30%** in 2017, reflecting the impact of the U.S. Tax Cuts and Jobs Act[197](index=197&type=chunk)[419](index=419&type=chunk) - CSG intends to indefinitely reinvest approximately **$49 million** of undistributed foreign earnings, thus no provision for foreign withholding taxes has been made[419](index=419&type=chunk) Deferred Income Tax Assets (Thousands) | Deferred Income Tax Assets (in thousands) | December 31, 2019 | December 31, 2018 | | :---------------------------------------- | :---------------- | :---------------- | | Deferred income tax assets | $71,343 | $51,533 | | Deferred income tax liabilities | $(48,411) | $(28,837) | | Valuation allowance | $(19,916) | $(19,814) | | Net deferred income tax assets | $3,016 | $2,882 | - As of December 31, 2019, CSG has acquired U.S. Federal NOL carryforwards of approximately **$29 million**, state NOL carryforwards of **$51 million**, and foreign subsidiary NOL carryforwards of **$96 million**[422](index=422&type=chunk) - The liability for unrecognized tax benefits was **$1.5 million** as of December 31, 2019, with an additional **$0.6 million** in accrued interest[426](index=426&type=chunk) - The Tax Cuts and Jobs Act reduced the U.S. corporate income tax rate from **35% to 21%** effective after December 31, 2017[428](index=428&type=chunk) [10. Employee Retirement Benefit Plans](index=66&type=section&id=10.%20Employee%20Retirement%20Benefit%20Plans) - CSG sponsors a defined contribution plan for U.S. employees, with company matching and non-elective contributions totaling **$11.3 million** in 2019[429](index=429&type=chunk) - Total contributions to defined contribution-type plans for non-U.S. employees were **$4.1 million** in 2019[429](index=429&type=chunk) [11. Commitments, Guarantees and Contingencies](index=67&type=section&id=11.%20Commitments%2C%20Guarantees%20and%20Contingencies) - CSG has an agreement with Ensono, Inc. for outsourced computing services through September 30, 2025, for its ACP solutions, making it highly dependent on Ensono for system availability and security[431](index=431&type=chunk) - The company generally warrants its solutions and services for **90 days**, with historical warranty costs being minimal, thus no warranty reserve is maintained[432](index=432&type=chunk) - Client arrangements typically include indemnification for intellectual property infringement claims, with no significant historical costs[433](index=433&type=chunk) - Liability for non-performance is typically capped, and adequate reserves are maintained for reasonably anticipated exposure[434](index=434&type=chunk) - CSG indemnifies its directors and officers and maintains D&O insurance, with no historical losses or current awareness of pending actions[435](index=435&type=chunk) [12. Stockholders' Equity](index=67&type=section&id=12.%20Stockholders'%20Equity) - CSG repurchased **576,000 shares** for **$25.5 million** in 2019 under its Stock Repurchase Program, with **5.0 million shares** remaining available[437](index=437&type=chunk)[438](index=438&type=chunk) - An additional **117,000 shares** were repurchased and canceled for **$5.1 million** in 2019 to cover minimum tax withholding requirements for restricted stock vesting[439](index=439&type=chunk) - Total cash dividends approved by the Board were **$0.89 per share** (**$29.4 million total**) in 2019[441](index=441&type=chunk) - Stock warrants issued to Comcast in 2014 for **2.9 million shares** at an exercise price of **$26.68 per warrant**, as an incentive for customer account conversions to ACP[442](index=442&type=chunk) - In December 2019, Comcast exercised its remaining **0.4 million** vested Stock Warrants, resulting in a net cash settlement of **$12.9 million**[449](index=449&type=chunk) - As of December 31, 2019, **1.0 million Stock Warrants** remain outstanding, none of which are vested[449](index=449&type=chunk) [13. Equity Compensation Plans](index=68&type=section&id=13.%20Equity%20Compensation%20Plans) - The Amended and Restated 2005 Stock Incentive Plan has **3.4 million shares** available for issuance as of December 31, 2019[450](index=450&type=chunk) - Restricted stock awards are granted at no cost, typically vesting annually over three or four years (Time-Based Awards) or upon meeting financial/total shareholder return objectives (Performance-Based Awards)[452](index=452&type=chunk)[453](index=453&type=chunk) Unvested Restricted Stock Activity (Shares in Thousands) | Unvested Restricted Stock Activity (shares in thousands) | Shares | Weighted-Average Grant Fair Value | | :------------------------------------------------------- | :----- | :-------------------------------- | | Unvested awards, beginning | 1,145 | $41.64 | | Awards granted | 530 | $41.69 | | Awards forfeited/cancelled | (168) | $42.41 | | Awards vested | (390) | $38.64 | | Unvested awards, ending | 1,117 | $42.60 | - The 1996 Employee Stock Purchase Plan allows U.S. employees to purchase common stock at **85% of market value**, with **222,260 shares** remaining eligible as of December 31, 2019[455](index=455&type=chunk) - Stock-based compensation expense was **$19.9 million** in 2019, with **$28.6 million** of unrecognized cost expected to be recognized over a weighted-average period of **2.2 years**[456](index=456&type=chunk) [14. Unaudited Quarterly Financial Data](index=70&type=section&id=14.%20Unaudited%20Quarterly%20Financial%20Data) 2019 Quarterly Financial Data (Thousands, Except Per Share Amounts) | 2019 Quarterly Data (in thousands, except per share amounts) | March 31 | June 30 | September 30 | December 31 | | :----------------------------------------------------------- | :------- | :-------- | :----------- | :---------- | | Total revenues | $244,793 | $245,856 | $251,414 | $254,747 | | Total cost of revenues (exclusive of depreciation) | $128,963 | $132,234 | $132,054 | $131,871 | | Operating income | $32,093 | $30,338 | $33,420 | $30,258 | | Income before income taxes | $25,851 | $26,837 | $28,821 | $24,214 | | Income tax provision | $(6,600) | $(7,458) | $(7,262) | $(1,633) | | Net income | $19,251 | $19,379 | $21,559 | $22,581 | | Basic earnings per common share | $0.60 | $0.60 | $0.67 | $0.71 | | Diluted earnings per common share | $0.59 | $0.60 | $0.66 | $0.70 | 2018 Quarterly Financial Data (Thousands, Except Per Share Amounts) | 2018 Quarterly Data (in thousands, except per share amounts) | March 31 | June 30 | September 30 | December 31 | | :----------------------------------------------------------- | :------- | :-------- | :----------- | :---------- | | Total revenues | $201,704 | $213,033 | $213,055 | $247,267 | | Total cost of revenues (exclusive of

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 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 oth ...

[Part I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents CSG Systems International, Inc.'s unaudited condensed consolidated financial statements for the three and six-month periods ended June 30, 2019 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,179,717** | **$1,114,362** | | Total current assets | $572,628 | $599,567 | | Total non-current assets | $607,089 | $514,795 | | **Total Liabilities** | **$805,393** | **$753,338** | | Total current liabilities | $335,584 | $350,391 | | Total non-current liabilities | $469,809 | $402,947 | | **Total Stockholders' Equity** | **$374,324** | **$361,024** | - Total assets increased to **$1.18 billion** as of June 30, 2019, from **$1.11 billion** at year-end 2018, primarily driven by the recognition of **$94.0 million** in operating lease right-of-use assets upon adoption of a new lease accounting standard[7](index=7&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Statement of Income Summary (in thousands, except EPS) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **$245,856** | **$213,033** | **$490,649** | **$414,737** | | Operating Income | $30,338 | $24,087 | $62,431 | $49,854 | | **Net Income** | **$19,379** | **$15,117** | **$38,630** | **$29,131** | | Diluted EPS | $0.60 | $0.46 | $1.19 | $0.88 | - Revenues for Q2 2019 increased **15.4% YoY** to **$245.9 million**, and net income grew **28.2% YoY** to **$19.4 million**. For the six-month period, revenues increased **18.3% YoY**, and net income grew **32.6% YoY**[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive Income (Loss) (in thousands) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $19,379 | $15,117 | $38,630 | $29,131 | | Other Comprehensive Income (Loss) | ($3,808) | ($16,163) | $57 | ($8,547) | | **Total Comprehensive Income (Loss)** | **$15,571** | **($1,046)** | **$38,687** | **$20,584** | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - For the six months ended June 30, 2019, total stockholders' equity increased from **$361.0 million** to **$374.3 million**. Key activities included net income of **$38.6 million**, offset by common stock repurchases of **$20.3 million** and cash dividend declarations of **$14.7 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $28,429 | $26,214 | | Net cash used in investing activities | ($15,647) | ($22,830) | | Net cash used in financing activities | ($38,184) | ($4,925) | | **Net decrease in cash and cash equivalents** | **($25,500)** | **($2,572)** | | Cash and cash equivalents, beginning of period | $139,277 | $122,243 | | **Cash and cash equivalents, end of period** | **$113,777** | **$119,671** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details accounting policies and financial data, covering revenue recognition, lease accounting, long-lived assets, debt, commitments, and equity activities - As of June 30, 2019, the company had approximately **$501 million** in remaining performance obligations, primarily from fixed fees and guaranteed minimums, with about **90%** expected to be recognized as revenue by the end of 2021[21](index=21&type=chunk) Revenues by Type and Geography for Six Months Ended June 30 (in thousands) | Revenue by Type | 2019 | 2018 | | :--- | :--- | :--- | | Cloud and related solutions | $441,773 | $364,917 | | Software and services | $25,201 | $25,290 | | Maintenance | $23,675 | $24,530 | | **Total Revenues** | **$490,649** | **$414,737** | | **Revenue by Geography** | **2019** | **2018** | | Americas | $425,120 | $350,120 | | Europe, Middle East, and Africa | $47,232 | $42,411 | | Asia Pacific | $18,297 | $22,206 | - The company adopted the new lease accounting standard (ASU 2016-02, Topic 842) in January 2019, resulting in the recognition of approximately **$80 million** in right-of-use assets and lease liabilities on the balance sheet[33](index=33&type=chunk)[34](index=34&type=chunk) Long-Term Debt Summary as of June 30, 2019 (in thousands) | Debt Instrument | Carrying Value | | :--- | :--- | | 2018 Term Loan, net | $138,628 | | 2016 Convertible Notes, net | $219,670 | | **Total Debt, net** | **$358,298** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2019 financial performance, covering revenue growth, client concentration, operational trends, liquidity, and capital allocation [Company Overview](index=16&type=section&id=Company%20Overview) - CSG is a leading provider of revenue management, digital monetization, customer experience, and payment solutions, primarily serving the communications, media, and entertainment industries[78](index=78&type=chunk) - The company generates approximately **60%** of its revenues from North American cable and satellite markets and **87%** from the Americas region overall for the six months ended June 30, 2019[81](index=81&type=chunk) [Management Overview of Quarterly Results](index=17&type=section&id=Management%20Overview%20of%20Quarterly%20Results) Q2 2019 vs Q2 2018 Financial Highlights (in thousands, except EPS) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Revenues | $245,856 | $213,033 | | Operating income | $30,338 | $24,087 | | Operating income margin | 12.3% | 11.3% | | Diluted EPS | $0.60 | $0.46 | - The **15% YoY revenue increase** in Q2 2019 was mainly attributed to additional revenues from the acquisition of Forte on October 1, 2018, and continued growth in cloud solutions and managed service arrangements[86](index=86&type=chunk) [Significant Client Relationships](index=17&type=section&id=Significant%20Client%20Relationships) - The company has a significant client concentration, with **Comcast** and **Charter** accounting for **23%** and **20%** of revenues, respectively, in Q2 2019[90](index=90&type=chunk)[91](index=91&type=chunk) - Comcast exercised a one-year renewal option, extending their agreement through June 30, 2020. The company is currently in discussions with Comcast regarding further contract renewal terms[93](index=93&type=chunk)[94](index=94&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) - Total revenues for the six months ended June 30, 2019, increased **18% YoY** to **$490.6 million**, driven by the Forte acquisition, growth in cloud solutions, and a full six months of revenue from the Business Ink acquisition[99](index=99&type=chunk) - Cloud and related solutions revenues grew **21% YoY** for the first six months of 2019, while Software/services and Maintenance revenues saw slight declines, reflecting a strategic shift towards recurring revenue models[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Operating expenses for the six months ended June 30, 2019, increased **17% YoY**, mainly due to additional costs from the Forte acquisition, including amortization and earn-out compensation[105](index=105&type=chunk) - Operating income margin improved to **12.7%** for the first six months of 2019 from **12.0%** in the prior year period, due to higher revenues and lower restructuring costs[119](index=119&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2019, principal sources of liquidity included **$131.5 million** in cash, cash equivalents, and short-term investments, and a **$200 million** undrawn revolving credit facility[123](index=123&type=chunk)[124](index=124&type=chunk) - Net cash from operating activities for the six months ended June 30, 2019 was **$28.4 million**, a slight increase from **$26.2 million** in the prior year period[128](index=128&type=chunk) - Key uses of cash in the first half of 2019 included **$17.9 million** for capital expenditures, **$14.8 million** for dividend payments, and **$20.7 million** for stock repurchases (including repurchases for tax withholdings)[137](index=137&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - The company believes its current cash, expected operating cash flows, and available credit will be sufficient to meet capital requirements for at least the next twelve months[162](index=162&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate, market value, and foreign currency exchange risks, with a hypothetical 10% adverse change not expected to be material - Interest rate risk exists on the 2018 Credit Agreement, which has variable rates based on LIBOR. The 2016 Convertible Notes have a fixed interest rate[165](index=165&type=chunk) - Market risk for cash equivalents and short-term investments (**$131.5 million** total) is considered minimal due to short maturities and strict investment guidelines[167](index=167&type=chunk)[168](index=168&type=chunk) - Foreign currency exchange risk is present due to global operations, though approximately **88%** of revenues in the first half of 2019 were in U.S. dollars, mitigating this risk[171](index=171&type=chunk)[172](index=172&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[175](index=175&type=chunk) [Part II - OTHER INFORMATION](index=28&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company states that it is not currently a party to any material pending or threatened legal proceedings - CSG is not presently a party to any material pending or threatened legal proceedings[179](index=179&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in the company's 2018 Form 10-K during the second quarter of 2019 - No material changes to the risk factors disclosed in the 2018 Form 10-K occurred during the second quarter of 2019[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchases during Q2 2019, including shares bought under the publicly announced program Common Stock Repurchases in Q2 2019 | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | April 2019 | 66,447 | $44.19 | 65,400 | | May 2019 | 43,187 | $45.86 | 43,000 | | June 2019 | 38,822 | $46.84 | 35,600 | | **Total** | **148,456** | **$45.37** | **144,000** | [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including key agreements and required certifications - Exhibits filed include multiple amendments to the Master Subscriber Management System Agreements with both Comcast and Charter Communications[188](index=188&type=chunk) - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[188](index=188&type=chunk)

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, 2019 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 j ...

PART I [Business](index=3&type=section&id=Item%201.%20Business) CSG provides revenue management, digital monetization, customer experience, and payment solutions, primarily for the communications industry - CSG provides **revenue management**, **digital monetization**, **customer experience**, and **payment solutions**, with a primary focus on the **global communications industry**[9](index=9&type=chunk) - The company's business strategy is centered on creating **long-term recurring relationships**, expanding its **product portfolio** through **innovation**, delivering on **commitments**, and investing in **talent**[18](index=18&type=chunk)[20](index=20&type=chunk) Key Client Revenue Contribution (2017-2018) | Client | 2018 Revenue (millions) | 2018 % of Total | 2017 Revenue (millions) | 2017 % of Total | | :--- | :--- | :--- | :--- | :--- | | Comcast | $221 | 25% | $219 | 28% | | Charter | $179 | 20% | $171 | 22% | | DISH | $80 | 9% | $89 | 11% | Research & Development Expenses (2017-2018) | Year | R&D Expense (millions) | % of Total Revenues | | :--- | :--- | :--- | | 2018 | $124.0 | 14% | | 2017 | $113.2 | 14% | - The company's primary product solutions include **Revenue Management & Digital Monetization** (**ACP**, **Ascendon**), **Customer Communications Management**, **Payments** (enhanced by the **Forte acquisition**), and **Managed Services**[25](index=25&type=chunk)[28](index=28&type=chunk) - As of December 31, 2018, the company had **3,965 employees**, an increase of **592** from the previous year, largely due to the acquisitions of **Business Ink** and **Forte**[37](index=37&type=chunk) [Risk Factors](index=7&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from client concentration, cybersecurity threats, data privacy, acquisition integration, and global operational complexities - A significant portion of revenues (approximately **55%**) is derived from three largest clients (**Comcast**, **Charter**, and **DISH**), posing a concentration risk[43](index=43&type=chunk) - The delivery of solutions depends on **computing systems** and **networks** that are subject to risks of **interruption**, **outages**, and **security breaches**, including **cyber-attacks**[46](index=46&type=chunk) - The company processes and stores confidential and personally identifiable information (**PII**), making it subject to data privacy laws like **GDPR** and risks associated with **security breaches**[48](index=48&type=chunk) - Acquisitions involve numerous risks, including difficulties in **assimilation**, expansion into **new markets**, and the potential inability to achieve expected **financial targets** and **synergies**[52](index=52&type=chunk) - The business is highly dependent on the **global communications industry**, which is subject to **market consolidation**, increased competition from **digital lifestyle providers**, and fluctuating **capital investment cycles**[55](index=55&type=chunk)[56](index=56&type=chunk) - The company's payment processing business is subject to **U.S. payments regulations**, including state money transmitter licensing requirements, and **anti-money laundering (AML) laws**[63](index=63&type=chunk)[69](index=69&type=chunk) - Global operations expose the company to additional risks, including **foreign currency fluctuations**, compliance with varied legal frameworks like the **FCPA**, political instability, and potential **adverse tax impacts**[70](index=70&type=chunk)[73](index=73&type=chunk) [Unresolved Staff Comments](index=14&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are **no unresolved staff comments**[84](index=84&type=chunk) [Properties](index=15&type=section&id=Item%202.%20Properties) CSG operates globally from over 25 leased sites, including its Colorado headquarters and four U.S. statement production facilities - The company's corporate headquarters is located in **Greenwood Village, Colorado**[88](index=88&type=chunk) - CSG leases over **25 sites worldwide**, covering more than **700,000 square feet** for office space and approximately **350,000 square feet** for four statement production and mailing facilities[87](index=87&type=chunk)[89](index=89&type=chunk) - Leases for office and production facilities expire between **2019** and **2027**[88](index=88&type=chunk)[89](index=89&type=chunk) [Legal Proceedings](index=15&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any material pending or threatened legal proceedings - In the opinion of management, the company is **not presently a party to any material pending or threatened legal proceedings**[91](index=91&type=chunk) [Mine Safety Disclosures](index=15&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - **Not applicable**[92](index=92&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) CSG's common stock is listed on NASDAQ under 'CSGS', with details on stock performance, equity compensation, and Q4 2018 share repurchases - The company's common stock is listed on the **NASDAQ Stock Market** under the symbol '**CSGS**'[114](index=114&type=chunk) Issuer Repurchases of Equity Securities (Q4 2018) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | Oct 1 - Oct 31 | 108,396 | $36.43 | | Nov 1 - Nov 30 | 89,160 | $35.92 | | Dec 1 - Dec 31 | 116,500 | $32.46 | | **Total** | **314,056** | **$34.81** | - As of December 31, 2018, there were **4,460,053 securities** remaining available for future issuance under equity compensation plans approved by security holders[119](index=119&type=chunk) [Selected Financial Data](index=21&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key financial metrics, reflecting acquisitions, revenue recognition standard adoption, and debt activities Selected Financial Data (2014-2018, in thousands, except per share amounts) | Metric | 2018 (thousands) | 2017 (thousands) | 2016 (thousands) | 2015 (thousands) | 2014 (thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $875,059 | $789,582 | $760,958 | $752,520 | $751,286 | | **Operating income** | $104,932 | $105,685 | $132,629 | $113,140 | $75,690 | | **Net income** | $66,130 | $61,364 | $62,882 | $62,567 | $35,711 | | **Diluted EPS ($)** | $2.01 | $1.87 | $1.90 | $1.87 | $1.06 | | **Dividend per share ($)** | $0.84 | $0.79 | $0.74 | $0.70 | $0.62 | | **Total assets** | $1,114,362 | $904,534 | $891,879 | $862,731 | $839,367 | | **Total debt** | $359,826 | $331,736 | $416,260 | $279,130 | $250,376 | - In **2018**, the company adopted the new revenue recognition standard **ASC 606** using the cumulative effect approach, which resulted in a cumulative adjustment increasing beginning retained earnings by approximately **$7 million** (net of tax)[125](index=125&type=chunk) - The **2018** results include operations from the acquisitions of **Business Ink** (ten months) and **Forte Payment Systems** (three months), which contributed approximately **$74 million** in revenue[125](index=125&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, CSG's revenues grew 11% to $875.1 million, driven by acquisitions, while operating income slightly decreased due to investment costs 2018 vs. 2017 Results of Operations Summary | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Revenues (millions) | $875.1 | $789.6 | | Operating Income (millions) | $104.9 | $105.7 | | Operating Margin (%) | 12.0 | 13.4 | | Diluted EPS ($) | $2.01 | $1.87 | - The **11%** revenue increase in **2018** was mainly attributed to the acquisitions of **Business Ink** and **Forte**, which together generated approximately **$74 million** in revenues during the year[149](index=149&type=chunk) - The company acquired **Business Ink** for approximately **$70 million** and **Forte Payment Systems** for approximately **$85 million** in **2018**, funded with existing cash[131](index=131&type=chunk)[133](index=133&type=chunk) - The effective income tax rate for **2018** was **24%**, a decrease from **30%** in **2017**, primarily due to the **U.S. Tax Cuts and Jobs Act** which reduced the corporate tax rate from **35%** to **21%**[136](index=136&type=chunk)[207](index=207&type=chunk) - Cash flows from operating activities increased to **$143.3 million** in **2018** from **$127.2 million** in **2017**[152](index=152&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Total revenues increased 11% to $875.1 million in 2018, primarily from acquisitions, while operating margin contracted to 12.0% due to rising expenses Revenue by Type (2016-2018, in thousands) | Revenue Type | 2018 (thousands) | 2017 (thousands) | 2016 (thousands) | | :--- | :--- | :--- | | Cloud and related solutions | $766,377 | $651,010 | $606,936 | | Software and services | $58,101 | $62,892 | $79,400 | | Maintenance | $50,581 | $75,680 | $74,622 | | **Total revenues** | **$875,059** | **$789,582** | **$760,958** | - The **18%** increase in **Cloud and related solutions revenue** was driven by **$74.1 million** from acquisitions (**Business Ink** and **Forte**) and a **$26.0 million** reclassification of revenue from other categories due to the adoption of **ASC 606**[177](index=177&type=chunk) - **R&D expense** increased **10%** to **$124.0 million** in **2018**, representing **14%** of total revenues, reflecting a heightened level of investment in growth initiatives[194](index=194&type=chunk)[196](index=196&type=chunk) - Operating income margin decreased from **13.4%** in **2017** to **12.0%** in **2018**, reflecting costs from acquisitions and planned business investments[203](index=203&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents decreased to $162.9 million in 2018 due to acquisitions, while operating cash flow increased, supported by a refinanced credit agreement - Cash, cash equivalents, and short-term investments decreased to **$162.9 million** at year-end **2018** from **$261.4 million** in **2017**, mainly due to approximately **$155 million** used for the acquisitions of **Business Ink** and **Forte**[209](index=209&type=chunk) Cash Flow Summary (2017-2018, in thousands) | Cash Flow Activity | 2018 (thousands) | 2017 (thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $143,341 | $127,195 | | Net Cash used in Investing Activities | ($86,139) | ($29,904) | | Net Cash used in Financing Activities | ($37,509) | ($105,494) | - In **March 2018**, the company refinanced its credit agreement, extending the term to **March 2023**, borrowing **$150 million**, and securing a **$200 million revolving credit facility**, which remained undrawn as of year-end[210](index=210&type=chunk)[211](index=211&type=chunk)[251](index=251&type=chunk) - Key uses of cash in **2018** included **$144.8 million** for **acquisitions**, **$57.1 million** for **capital expenditures**, **$34.7 million** for **common stock repurchases**, and **$28.0 million** for **dividend payments**[226](index=226&type=chunk)[228](index=228&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) Contractual Obligations as of Dec 31, 2018 (in thousands) | Obligation Type | Total (thousands) | Less than 1 Year (thousands) | Years 2-3 (thousands) | Years 4-5 (thousands) | More than 5 Years (thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $570,048 | $23,854 | $56,007 | $137,999 | $352,188 | | Leases | $79,465 | $16,609 | $27,147 | $21,034 | $14,675 | | Purchase obligations | $259,410 | $89,826 | $129,199 | $28,787 | $11,598 | | **Total** | **$908,923** | **$130,289** | **$212,353** | **$187,820** | **$378,461** | [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate, market, and foreign currency risks, though a significant portion of revenue is USD-denominated - The company is exposed to **interest rate risk** through its **2018 Credit Agreement**, which has interest rates based on a variable adjusted **LIBOR** rate[265](index=265&type=chunk) - **Market risk** exists for cash equivalents, short-term investments, and the fair value of its convertible debt, which is influenced by **interest rates** and the company's **stock price**[267](index=267&type=chunk)[270](index=270&type=chunk) - **Foreign currency exchange rate risk** is present due to global operations, but is partially mitigated as approximately **87%** of **2018** revenues were generated in **U.S. dollars**[271](index=271&type=chunk)[272](index=272&type=chunk) [Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes consolidated financial statements for 2018, management's report on internal controls, and KPMG's unqualified audit opinion - Management concluded that the company's **internal control over financial reporting** was **effective** as of **December 31, 2018**. The assessment excluded the recently acquired **Forte Payment Systems, Inc.**[283](index=283&type=chunk) - The independent registered public accounting firm, **KPMG LLP**, issued an **unqualified opinion** on both the consolidated financial statements and the effectiveness of the company's **internal control over financial reporting**[286](index=286&type=chunk)[295](index=295&type=chunk) Consolidated Balance Sheet Summary (as of Dec 31, in thousands) | Account | 2018 (thousands) | 2017 (thousands) | | :--- | :--- | :--- | | Total current assets | $599,567 | $554,266 | | Total assets | $1,114,362 | $904,534 | | Total current liabilities | $350,391 | $222,593 | | Total liabilities | $753,338 | $561,788 | | Total stockholders' equity | $361,024 | $342,746 | Consolidated Statement of Income Summary (Year Ended Dec 31, in thousands) | Account | 2018 (thousands) | 2017 (thousands) | 2016 (thousands) | | :--- | :--- | :--- | | Total revenues | $875,059 | $789,582 | $760,958 | | Operating income | $104,932 | $105,685 | $132,629 | | Income before income taxes | $86,987 | $87,710 | $99,999 | | Net income | $66,130 | $61,364 | $62,882 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=74&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - **None reported**[491](index=491&type=chunk) [Controls and Procedures](index=74&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of December 31, 2018, excluding a recent acquisition from the internal control assessment - The **CEO** and **CFO** concluded that the company's **disclosure controls and procedures** were effective as of the end of the period covered by the report[491](index=491&type=chunk) - Management's evaluation of **internal control over financial reporting** excluded **Forte Payment Systems, Inc.**, which was acquired on **October 1, 2018**[492](index=492&type=chunk) - There were **no changes** in internal control over financial reporting during the **fourth quarter of 2018** that have materially affected, or are reasonably likely to materially affect, internal controls[494](index=494&type=chunk) [Other Information](index=75&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - **None**[495](index=495&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=75&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors and executive officers is incorporated by reference from the 2019 Proxy Statement and Part I of this Form 10-K - Information for this item is **incorporated by reference** from the Registrant's Definitive Proxy Statement for its **2019 Annual Meeting of Stockholders**[498](index=498&type=chunk) [Executive Compensation](index=75&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2019 Annual Meeting of Stockholders Proxy Statement - Information for this item is **incorporated by reference** from the Registrant's Definitive Proxy Statement for its **2019 Annual Meeting of Stockholders**[499](index=499&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=75&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership details are incorporated by reference from the 2019 Proxy Statement, excluding equity compensation plan information in Item 5 - Information for this item is **incorporated by reference** from the Registrant's Definitive Proxy Statement for its **2019 Annual Meeting of Stockholders**[500](index=500&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=75&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the 2019 Annual Meeting of Stockholders Proxy Statement - Information for this item is **incorporated by reference** from the Registrant's Definitive Proxy Statement for its **2019 Annual Meeting of Stockholders**[501](index=501&type=chunk) [Principal Accounting Fees and Services](index=75&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the 2019 Annual Meeting of Stockholders Proxy Statement - Information for this item is **incorporated by reference** from the Registrant's Definitive Proxy Statement for its **2019 Annual Meeting of Stockholders**[502](index=502&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=76&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements and exhibits, with no separate schedules, as all required information is in the main financial statements - This section lists the financial statements filed as part of the report, which are indexed on **page 40**[505](index=505&type=chunk) - **No separate financial statement schedules** are provided, as the required information is included within the main financial statements and their notes[505](index=505&type=chunk) - An **Exhibit Index** is provided, listing all exhibits filed with or incorporated by reference into the **Form 10-K**[506](index=506&type=chunk)