CSG Systems International(US:CSGS)2023-08-02 16:00Part I - Financial Information The first part details the company's financial performance and position, including statements, management's analysis, market risks, and internal controls Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q2 2023 show decreased total assets and liabilities, with significant increases in revenue and net income Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $1.29 billion from $1.35 billion, while total liabilities also decreased to $909.8 million Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,293,069 | $1,348,553 | | Total Current Assets | $725,415 | $765,955 | | Total Liabilities | $909,758 | $993,304 | | Total Current Liabilities | $431,102 | $527,209 | | Long-term Debt, net | $402,092 | $375,469 | | Total Stockholders' Equity | $383,311 | $355,249 | Condensed Consolidated Statements of Income For Q2 2023, revenue increased 9.2% to $286.3 million, and net income surged 162.4% to $14.0 million, with diluted EPS rising to $0.45 Q2 2023 vs Q2 2022 Performance (in thousands, except EPS) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $286,327 | $262,168 | +9.2% | | Operating Income | $28,206 | $7,283 | +287.3% | | Net Income | $13,954 | $5,317 | +162.4% | | Diluted EPS | $0.45 | $0.17 | +164.7% | Six Months 2023 vs 2022 Performance (in thousands, except EPS) | Metric | Six Months 2023 | Six Months 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $585,066 | $526,568 | +11.1% | | Operating Income | $66,399 | $23,698 | +180.2% | | Net Income | $34,882 | $11,430 | +205.2% | | Diluted EPS | $1.14 | $0.36 | +216.7% | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities for the first six months of 2023 was $27.8 million, a significant improvement from a $13.3 million use in the prior year Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $27,783 | $(13,265) | | Net cash provided by (used in) investing activities | $(16,357) | $7,108 | | Net cash used in financing activities | $(78,543) | $(35,187) | | Net decrease in cash, cash equivalents, and restricted cash | $(66,409) | $(44,672) | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, including revenue from SaaS solutions, significant reduction in restructuring charges, and increased total debt - The aggregate amount of transaction price allocated to remaining performance obligations is $1.6 billion as of June 30, 2023, with approximately 70% expected to be recognized by the end of 202513 Revenue by Type (in thousands) | Revenue Type | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | SaaS and related solutions | $255,600 | $230,712 | | Software and services | $18,766 | $20,068 | | Maintenance | $11,961 | $11,388 | | Total revenue | $286,327 | $262,168 | - Restructuring and reorganization charges for the six months ended June 30, 2023 were $7.3 million, significantly lower than the $32.1 million recorded in the same period of 20225675 - As of June 30, 2023, total debt stood at $424.6 million, consisting of a $136.9 million term loan and $290.0 million drawn on the revolving loan facility, both with an interest rate of 6.967%3754 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 revenue growth driven by revenue management solutions, improved operating income due to lower restructuring charges, significant customer concentration, and strong liquidity Results of Operations Q2 2023 revenue increased 9.2% to $286.3 million, while operating expenses rose modestly, leading to a substantial improvement in operating income to $28.2 million - Q2 2023 revenue increased by 9.2% YoY, primarily attributed to the continued growth of revenue management solutions, conversion of customer accounts, and higher payment volumes110 - Operating expenses for Q2 2023 increased by 1.3% YoY, reflecting higher employee-related costs associated with revenue growth, but were significantly offset by a $16.9 million decrease in restructuring and reorganization charges111133 - Operating income for Q2 2023 was $28.2 million (9.9% margin), a significant increase from $7.3 million (2.8% margin) in Q2 2022, mainly due to lower restructuring charges and higher revenue134 Significant Customer Relationships The company maintains significant revenue concentration with Charter and Comcast, which accounted for 21% and 19% of Q2 2023 revenue, respectively, with extended agreements Revenue from Largest Customers (as % of Total Revenue) | Customer | Q2 2023 | Q1 2023 | Q2 2022 | | :--- | :--- | :--- | :--- | | Charter | 21% | 21% | 20% | | Comcast | 19% | 18% | 20% | - In April 2023, the agreement with Charter was amended and restated, extending the term through March 31, 2028103 - On June 29, 2023, Comcast exercised its option to extend its processing and other related solutions agreement through December 31, 2025104 Liquidity and Capital Resources As of June 30, 2023, the company had $146.2 million in cash and equivalents, supported by operating cash flow and a $450 million revolving credit facility - Principal sources of liquidity as of June 30, 2023, included $146.2 million in cash and equivalents, and a $450.0 million revolving loan facility with $145.0 million available as of July 2023140118 - Days Billings Outstanding (DBO) was 65 days at the end of Q2 2023, an improvement from 68 days at the end of Q1 2023 and 66 days at the end of Q2 2022122 - During the six months ended June 30, 2023, the company paid $17.7 million in dividends and used $9.4 million to repurchase common stock for tax withholding requirements, with no repurchases under the formal Stock Repurchase Program150167168 - In August 2023, the company announced its intention to enter into an approximately $100 million share repurchase plan through the end of 2024193 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from variable interest rates on its debt and foreign currency fluctuations, though foreign currency exposure is limited - The company is exposed to interest rate risk as its 2021 Credit Agreement is based on a variable adjusted SOFR rate, which replaced LIBOR in April 2023181 - Foreign currency exchange risk exists due to global operations, but is limited as approximately 88% of revenue for the first six months of 2023 was generated in U.S. dollars202203 - As of June 30, 2023, the company held $176.4 million in settlement and merchant reserve assets, which are exposed to market risk but are held in accounts with major financial institutions201 Item 4. Controls and Procedures As of June 30, 2023, the company's CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - 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 report186 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting205 Part II - Other Information The second part covers other relevant information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is not currently a party to any material pending or threatened legal proceedings outside the normal course of business - In the opinion of management, the company is not presently a party to any material pending or threatened legal proceedings189 Item 1A. Risk Factors There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There were no material changes to the risk factors disclosed in the 2022 Form 10-K during the second quarter of 2023190 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased 2,189 shares for employee stock incentive plans, with 2,107,047 shares remaining available under the authorized program Share Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Purchased as Part of Public Plan | | :--- | :--- | :--- | :--- | | April 2023 | 563 | $54.17 | - | | May 2023 | 888 | $49.75 | - | | June 2023 | 738 | $50.70 | - | | Total | 2,189 | $51.21 | - | - As of the end of Q2 2023, the maximum number of shares that may yet be purchased under the company's publicly announced plan is 2,107,047215 Item 6. Exhibits This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-Q, including credit agreements and customer contracts - Key exhibits filed include the First Amendment to the Amended and Restated Credit Agreement and amendments to the Master Subscriber Management System Agreement with Comcast210