CSG Systems International(US:CSGS)2023-11-01 16:00Part I - Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for CSG Systems International, Inc., including Balance Sheets, Statements of Income, Statements of Cash Flows, and accompanying notes, for the period ended September 30, 2023 Condensed Consolidated Balance Sheets As of September 30, 2023, total assets slightly decreased to $1.33 billion, while total liabilities increased to $1.07 billion due to higher long-term debt, leading to a reduction in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $760,067 | $765,955 | | Total assets | $1,329,602 | $1,348,553 | | Total current liabilities | $461,533 | $527,209 | | Long-term debt, net | $535,998 | $375,469 | | Total liabilities | $1,069,111 | $993,304 | | Total stockholders' equity | $260,491 | $355,249 | Condensed Consolidated Statements of Income For Q3 2023, revenue grew 5.0% to $286.9 million with net income increasing to $18.7 million, while for the nine months, revenue grew 9.0% to $871.9 million and net income more than doubled to $53.6 million Financial Performance Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $286,868 | $273,308 | $871,934 | $799,876 | | Operating Income | $32,731 | $19,977 | $99,130 | $43,675 | | Net Income | $18,694 | $12,481 | $53,576 | $23,911 | | Diluted EPS | $0.62 | $0.40 | $1.75 | $0.76 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operations significantly increased to $52.4 million, while investing activities used $22.9 million and financing activities used $78.0 million, primarily for stock repurchases and dividends Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $52,365 | $9,573 | | Net cash used in investing activities | ($22,869) | ($4,117) | | Net cash used in financing activities | ($77,965) | ($70,375) | | Net decrease in cash, cash equivalents, and restricted cash | ($48,917) | ($72,608) | Notes to Condensed Consolidated Financial Statements These notes detail critical financial disclosures, including revenue recognition, the issuance of $425 million in new convertible notes, significant restructuring activities, and substantial stock repurchase and dividend activities - The aggregate amount of transaction price allocated to remaining performance obligations is $1.5 billion as of September 30, 2023, with over 65% expected to be recognized by the end of 202517 Revenue by Type (Nine Months Ended Sep 30, in thousands) | Revenue Type | 2023 | 2022 | | :--- | :--- | :--- | | SaaS and related solutions | $764,253 | $704,303 | | Software and services | $73,235 | $61,627 | | Maintenance | $34,446 | $33,946 | | Total Revenue | $871,934 | $799,876 | - In September 2023, the company issued $425.0 million of 3.875% senior convertible notes due 202860 - During the nine months ended September 30, 2023, the company recorded restructuring and reorganization charges of $8.4 million, a significant decrease from $46.3 million in the same period of 2022, including charges for dissolving the Keydok business and workforce reductions98100 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's performance, highlighting a 9.0% revenue increase and substantial operating income growth, while also addressing significant customer concentration, new debt issuance, and capital allocation strategies Results of Operations For the nine months ended September 30, 2023, revenue increased 9.0% to $871.9 million, with operating income rising to $99.1 million due to higher revenue and reduced restructuring charges, while the Americas region contributed 86% of total revenue - Revenue for the nine months ended September 30, 2023, increased by 9.0% year-over-year, primarily attributed to the continued growth of revenue management solutions and strong performance in SaaS and related solutions revenue122 - Operating income for the nine months ended September 30, 2023, was $99.1 million (11.4% of revenue), a significant increase from $43.7 million (5.5% of revenue) in the same period of 2022, mainly due to lower restructuring charges and higher revenue127 Revenue by Geographic Region (Nine Months Ended Sep 30, in thousands) | Region | 2023 | 2022 | | :--- | :--- | :--- | | Americas (principally the U.S.) | $746,299 | $679,002 | | Europe, Middle East, and Africa | $88,795 | $88,878 | | Asia Pacific | $36,840 | $31,996 | | Total Revenue | $871,934 | $799,876 | Significant Customer Relationships The company's revenue is highly concentrated with Charter and Comcast, accounting for 21% and 19% of Q3 2023 revenue respectively, though recent agreement extensions mitigate near-term renewal risk Revenue Concentration from Major Customers (Q3 2023) | Customer | % of Revenue | Revenue (in thousands) | | :--- | :--- | :--- | | Charter | 21% | $59,432 | | Comcast | 19% | $53,653 | - In April 2023, the agreement with Charter was amended and restated, extending the term through March 31, 2028146 - In June 2023, Comcast exercised its option to extend its processing and other related solutions agreement through December 31, 2025147 Liquidity and Capital Resources As of September 30, 2023, the company held $146.7 million in cash, having issued $425 million in convertible notes, repaid $275 million on its revolver, repurchased $197.1 million in stock, and paid $26.2 million in dividends - In September 2023, the company issued $425.0 million in 2023 Convertible Notes, using net proceeds to repay $275.0 million of its 2021 Revolver, repurchase $90.1 million of common stock, and pay $34.3 million for Capped Call Transactions91168 - During the nine months ended September 30, 2023, the company repurchased approximately 1,991,000 shares of common stock for $107.0 million under its Stock Repurchase Program191173 - The Board approved dividends totaling $26.4 million during the first nine months of 2023, with $26.2 million paid during the period190 - As of September 30, 2023, the company had $15.0 million outstanding on its $450.0 million revolving loan facility, leaving $435.0 million available179197 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate risk from variable-rate debt, market value fluctuations of fixed-rate convertible debt, and foreign currency exchange rate risk, though 88% of revenue is U.S. dollar-denominated, and management deems these risks immaterial - The company is exposed to interest rate risk on its 2021 Credit Agreement, based on a variable adjusted SOFR rate, where a hypothetical 10% adverse change is not expected to have a material impact232205 - The fair value of the company's convertible debt is exposed to market risk, with the $425 million 2023 Convertible Notes estimated at $414.7 million as of September 30, 2023208 - The company is exposed to foreign currency exchange rate risk, mitigated by approximately 88% of revenue for the first nine months of 2023 being U.S. dollar-denominated209235 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during 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 report236 - Management concluded that there were no changes during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting211 Part II - Other Information Item 1. Legal Proceedings Management believes CSG Systems International, Inc. is not currently involved in any material pending or threatened legal proceedings that would significantly impact its operations or financial condition - In the opinion of management, the company is not presently a party to any material pending or threatened legal proceedings214 Item 1A. Risk Factors No material changes occurred to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K during the third quarter of 2023 - No material changes to the risk factors disclosed in the 2022 Form 10-K occurred during the third quarter of 2023238 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 1,994,147 shares at an average price of $53.73 per share, including shares under its repurchase program, with an additional $100.0 million authorized for future repurchases Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 810 | $51.92 | | August 2023 | 260,552 | $54.63 | | September 2023 | 1,732,785 | $53.60 | | Total Q3 | 1,994,147 | $53.73 | - In August 2023, the Board authorized an additional $100.0 million for stock repurchases under the Stock Repurchase Program216 Item 6. Exhibits This section indexes all exhibits filed with the Form 10-Q, including the Indenture for the new 3.875% Convertible Senior Notes due 2028, Capped Call Confirmations, and various agreement amendments - Key exhibits filed include the Indenture for the 2023 Convertible Notes, the Second Amendment to the 2021 Credit Agreement, and the form of Capped Call Confirmations219241246