CSG Systems International, Inc. (NASDAQ:CSGS) Q4 2020 Results Conference Call February 3, 2021 5:00 PM ET Company Participants John Rea - Investor Relations Brian Shepherd - Chief Executive Officer Rollie Johns - Chief Financial Officer Conference Call Participants Tom Roderick - Stifel Greg Burns - Sidoti & Company Operator Good day, and welcome to the CSG Systems International Fourth Quarter 2020 Earnings Announcement. All participants are in a listen-only mode. A question and answer session will follow t ...

CSG SYSTEMS INTERNATIONAL, INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES Use of Non-GAAP Financial Measures and Limitations To supplement its condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), CSG uses non-GAAP adjusted revenue, non-GAAP operating income, non-GAAP adjusted operating margin percentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-27512 CSG SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-0783182 (State or oth ...

CSG Systems International, Inc. (NASDAQ:CSGS) Q3 2020 Earnings Conference Call November 4, 2020 5:00 PM ET Company Participants Liz Bauer – Senior Vice President, Chief Communication and Investor Relations Officer Bret Griess – Chief Executive Officer Rollie Johns – Chief Financial Officer Brian Shepherd – Executive Vice President Conference Call Participants Operator Good day and welcome to the CSG Systems International Third Quarter 2020 Earnings Announcement. All participants are in a listen-only mode. A ...

CSG Systems International, Inc. (NASDAQ:CSGS) Q2 2020 Earnings Conference Call August 5, 2020 5:00 PM ET Company Participants David Banks - Executive Director, Investor Relations Bret Griess - President, Chief Executive Officer & Director Rollie Johns - Executive Vice President & Chief Financial Officer Conference Call Participants Zach Silver - B. Riley Operator Good day and welcome to CSG Systems International Second Quarter 2020 Earnings Announcement. All participants are in a listen-only mode. A questio ...

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 June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-27512 CSG SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-0783182 (State or other ju ...

Financial Data and Key Metrics Changes - For Q1 2020, GAAP revenue was $246 million, slightly up year-over-year, while non-GAAP adjusted revenue was $227 million, essentially flat year-over-year [33] - Non-GAAP operating income was $42 million, representing an operating margin of 18.5%, benefiting from a mark-to-market reduction in compensation liability due to stock market decline [34] - Non-GAAP adjusted EBITDA was $55 million, up slightly year-over-year, representing 24% of non-GAAP adjusted revenue [35] - Non-GAAP EPS for the quarter was $0.87, a 6% increase compared to the same quarter last year [35] Business Line Data and Key Metrics Changes - The company experienced some softness in project implementations starting mid-March due to COVID-19, but overall, the majority of business remained strong [17][18] - The payments business saw a slowdown in the last two weeks of March, particularly affecting small to midsized companies, but was less impacted than other sectors like travel and hospitality [21][56] - The company extended its long-term relationship with Mediacom for another five years, indicating continued strength in its client relationships [16] Market Data and Key Metrics Changes - North American broadband, cable, and satellite customers continued to perform close to business as usual, driven by increased demand for internet connectivity during quarantine [17] - Global communication service providers showed mixed results, with some experiencing slowdowns in early engagement stages while others accelerated discussions about digital customer engagement solutions [18] - EMEA and APAC revenues were down, with EMEA remaining in line with previous quarters and APAC showing softness not directly correlated to COVID-19 [66] Company Strategy and Development Direction - The company is focused on maintaining a healthy balance sheet and liquidity, with $131 million in cash and short-term investments and $200 million available on a committed line of credit [36][38] - The company plans to continue evaluating investments and spending as it adapts to the new normal, emphasizing a product platform model that reduces dependency on heavy investments [27] - The pandemic has accelerated the need for digital transformation, positioning the company to support clients in adapting to new customer engagement methods [75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilient business model, which provides over 90% revenue visibility entering each year [9][48] - The company anticipates a revenue range adjustment to $960 million to $1 billion for 2020, reflecting a 3% decrease due to project delays and economic impacts from COVID-19 [41] - Management noted that while the majority of business remains unaffected, there are risks in specific areas such as payments and managed services [41] Other Important Information - The company has implemented measures to protect employee health and safety during the pandemic, including work-from-home mandates for over 90% of employees [12][13] - The company has doubled its supply of paper and ink and accelerated printer additions to mitigate potential disruptions in print and mail facilities [28] Q&A Session Summary Question: What is the primary reason for the revenue guidance adjustment? - The primary reason for the revenue guidance adjustment is a $30 million reduction due to project delays and longer sales cycles, particularly for new projects [53][55] Question: What volume declines are expected in the payments business? - The payments business is experiencing less than 30% decline, with signs of recovery as economic activities resume [57] Question: Were there any price concessions in the Mediacom deal? - There were price concessions during the renewal, but the deal was considered fair for both parties, with healthy discussions around the terms [58][61] Question: How are IT budgets changing among primary end customers? - There have not been significant changes in IT budgets, but spending is being approached with caution, especially in EMEA and APAC regions [66][68]

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, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-27512 CSG SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-0783182 (State or other j ...

CSG CONFIDENTIAL AND PROPRIETARY INFORMATION | COPYRIGHT © 2020 CSG SYSTEMS INTERNATIONAL, INC. AND/OR ITS AFFILIATES ("CSG INTERNATIONAL"). ALL RIGHTS RESERVED. CSG INTERNATIONAL NASDAQ: CSGS JMP SECURITIES TECHNOLOGY CONFERENCE FEBRUARY 24, 2020 SAN FRANCISCO SAFE HARBOR This presentation may contain statements that are forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially because ...

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