CSG Systems International(CSGS) - 2023 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Financial Statements The unaudited statements show significant growth in net income and EPS for the quarter ended March 31, 2023 Condensed Consolidated Statements of Income (Q1 2023 vs Q1 2022) | Financial Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | $298,739 | $264,400 | +13.0% | | Operating Income | $38,193 | $16,415 | +132.7% | | Net Income | $20,928 | $6,113 | +242.4% | | Diluted EPS | $0.68 | $0.19 | +257.9% | Condensed Consolidated Balance Sheets (Key Items) | Balance Sheet Item | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total cash, cash equivalents, and short-term investments | $167,681 | $150,436 | | Total Assets | $1,296,008 | $1,348,553 | | Total Debt (Current + Long-term) | $441,281 | $412,969 | | Total Liabilities | $927,785 | $993,304 | | Total Stockholders' Equity | $368,223 | $355,249 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $15,397 | $(5,549) | | Net cash provided by (used in) investing activities | $(8,629) | $11,512 | | Net cash used in financing activities | $(51,132) | $(54,614) | Notes to Condensed Consolidated Financial Statements Disclosures cover accounting policies, revenue breakdown, debt benchmark transition, and restructuring charges Revenue Breakdown (Q1 2023 vs Q1 2022) | Revenue by Type | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | SaaS and related solutions | $257,876 | $234,977 | | Software and services | $30,891 | $18,436 | | Maintenance | $9,972 | $10,987 | | Total Revenue | $298,739 | $264,400 | | Revenue by Geography | Q1 2023 (%) | Q1 2022 (%) | | :--- | :--- | :--- | | Americas | 84% | 84% | | Europe, Middle East, and Africa | 12% | 12% | | Asia Pacific | 4% | 4% | - In April 2023, the company amended its 2021 Credit Agreement to replace the LIBOR interest rate benchmark with the Secured Overnight Financing Rate (SOFR)[3] - The company recorded restructuring and reorganization charges of $5.2 million in Q1 2023, including a $1.2 million impairment from the dissolution of the Keydok business[36][64] - As of March 31, 2023, total debt, net of unamortized discounts, was $441.3 million, up from $413.0 million at year-end 2022[61] - In Q1 2023, the company repurchased approximately 166,000 shares for $9.3 million for tax withholding on vested restricted stock, with no shares repurchased under the formal program[5][70][90] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's analysis highlights a 13% revenue increase, improved operating income, and key business events Company Overview CSG provides SaaS solutions for revenue management and customer experience, primarily to the communications industry - The company positions itself as a purpose-driven SaaS platform company focused on revenue management, digital monetization, customer experience, and payments solutions[76] - R&D and acquisition investments are focused on expanding offerings using a scalable, modular, and flexible solutions architecture[77] Results of Operations Q1 2023 saw a 13% revenue increase and a surge in operating income, driven by software and SaaS growth - Revenue grew 13.0% YoY, primarily due to a $12.5 million (67.6%) increase in software and services revenue and growth in SaaS solutions[208] - The company completed the final conversions of Charter's customer accounts onto its platforms, having converted over nine million accounts in the last twelve months[208][217] - Operating expenses increased by 5.1% to $260.5 million, partially offset by a $7.9 million decrease in restructuring and reorganization charges[102][122] - Interest expense increased by $3.9 million to $7.2 million due to rising interest rates and a higher average outstanding debt balance[105] Significant Customer Relationships Revenue is concentrated with Charter and Comcast, with a renewed Charter agreement extending to March 2028 Revenue from Major Customers (% of Total Revenue) | Customer | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Charter | 21% | 20% | | Comcast | 18% | 20% | - In April 2023, the company entered into an Amended and Restated Master Agreement with Charter, extending the term through March 31, 2028[115] Liquidity and Capital Resources The company maintains sufficient liquidity through cash reserves, operating cash flows, and its credit facility - Cash, cash equivalents, and short-term investments totaled $167.7 million at March 31, 2023, with approximately 61% held in U.S. dollars in the U.S[138][210] - The company has a $450.0 million revolving loan facility, with $305.0 million outstanding and $145.0 million available as of March 31, 2023[108][139] - The Board approved a quarterly cash dividend of $0.28 per share in Q1 2023, totaling $8.8 million[91][166] - The company believes existing cash and credit facilities are sufficient to meet anticipated capital needs for at least the next twelve months[189] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency risks, managed without speculative derivatives - The company is exposed to interest rate risk on its 2021 Credit Agreement, with the benchmark recently changed from LIBOR to SOFR[148] - Foreign currency exchange risk exists due to global operations, but its impact is not expected to be material as 86% of Q1 2023 revenue was in U.S. dollars[174][151] - Market risk for cash equivalents and short-term investments is considered minimal due to short maturities and high credit quality[149][192] Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes in the quarter - 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[176] - Management concluded that no changes occurred during the quarter that have materially affected the company's internal control over financial reporting[177] Part II - OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - In the opinion of management, the company is not presently a party to any material pending or threatened legal proceedings[179] Risk Factors No material changes were reported to the risk factors disclosed in the 2022 Form 10-K - No material changes were made to the risk factors disclosed in the 2022 Form 10-K during Q1 2023[180] Unregistered Sales of Equity Securities and Use of Proceeds Details stock repurchases made during Q1 2023 to satisfy employee tax withholding obligations Common Stock Purchases in Q1 2023 | Month (2023) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January | 10,821 | $58.15 | | February | 64,179 | $60.54 | | March | 91,266 | $52.75 | | Total | 166,266 | $56.11 | - The shares purchased were not part of the formal Stock Repurchase Program but were repurchased to cover tax withholding requirements from vested restricted stock[5][181] Exhibits Lists filed exhibits, including executive agreements and required Sarbanes-Oxley certifications - Filed exhibits include executive severance plan participation agreements for Brian A. Shepherd, Kenneth M. Kennedy, and Elizabeth A. Bauer[200] - Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act are included as exhibits[200] Signatures The report is duly signed by the company's principal executive and financial officers as of May 4, 2023 - The report was signed on May 4, 2023, by Brian A. Shepherd (CEO), Hai Tran (CFO), and David N. Schaaf (Chief Accounting Officer)[202]