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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 0-27512

 

CSG SYSTEMS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-0783182

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

6175 S. Willow Drive, 10th Floor

Greenwood Village, Colorado

 

80111

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (303) 200-2000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, Par Value $0.01 Per Share

 

CSGS

 

NASDAQ Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☒  NO ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

☒

Accelerated filer

 

☐

Non-accelerated filer

 

☐

 

 

 

 

 

 

 

 

 

Smaller reporting company

 

☐

Emerging growth company

 

☐

 

 

 

 

 

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒  

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market on June 30, 2019, was $1,158,870,134.

The number of shares of Registrant’s Common Stock outstanding as of February 18, 2020 was 32,852,226.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement for its 2020 Annual Meeting of Stockholders to be filed on or prior to April 29, 2020, are incorporated by reference into Part III of this Report.

 

 

 

 

 

CSG SYSTEMS INTERNATIONAL, INC.

2019 FORM 10-K

TABLE OF CONTENTS

 

 

 

 

  

Page

PART I

  

 

 

 

 

 

Item 1.

 

Business

  

3

Item 1A.

 

Risk Factors

  

8

Item 1B.

 

Unresolved Staff Comments

  

15

Item 2.

 

Properties

  

15

Item 3.

 

Legal Proceedings

  

15

Item 4.

 

Mine Safety Disclosures

  

15

 

 

 

PART II

  

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  

19

Item 6.

 

Selected Financial Data

  

21

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

23

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

  

37

Item 8.

 

Financial Statements and Supplementary Data

  

39

Item 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

  

71

Item 9A.

 

Controls and Procedures

  

71

Item 9B.

 

Other Information

  

71

 

 

 

PART III

  

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

  

72

Item 11.

 

Executive Compensation

  

72

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  

72

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  

72

Item 14.

 

Principal Accounting Fees and Services

  

72

 

 

 

PART IV

  

 

 

 

 

 

Item 15.

 

Exhibits, Financial Statement Schedules

  

73

Item 16.

 

Form 10-K Summary

 

73

 

 

Signatures

  

94

 

 

 

2

 

PART I

 

Item 1.

Business

Overview

CSG Systems International, Inc. (the “Company”, “CSG”, or forms of the pronoun “we”) is one of the world’s leading providers of revenue management, customer experience, and payment solutions that enable a growing list of companies around the world to monetize relationships with their customers in an era of rapid change and digital transformation.  We leverage more than 35 years of experience to deliver innovative customer engagement solutions that help our clients solve their toughest challenges, helping them to acquire, monetize, engage, and retain their customers. Our 4,300-plus diverse, worldwide workforce draws from real-world knowledge and extensive expertise to design and implement business solutions that make our clients’ hardest decisions simpler so that they can focus on delivering differentiated and real-time experiences to their customers.

Our proven solutions are built on a combination of on-premise, public and private cloud platforms, either customized or pre-integrated, as well as managed services models that adapt to fit our clients’ unique business needs and enable the transformative change required to create personalized experiences that drive loyalty and retention.

Our principal executive offices are located at 6175 S. Willow Drive, 10th Floor, Greenwood Village, Colorado 80111, and the telephone number at that address is (303) 200-2000.

Our common stock is listed on the NASDAQ Stock Market LLC (“NASDAQ”) under the symbol “CSGS”. We are a S&P Small Cap 600 company.

Industry Overview

Background. We provide software and services solutions that help companies around the world monetize and digitally enable the customer experience.  While our heritage is born out of the communications industry, we count among our clients some of the world’s largest and most sophisticated communications, financial services, healthcare, and media and entertainment companies, as well as a long list of governmental entities, with an increasingly diversified revenue mix.  Our solutions allow service providers to:

 

•

Monetize new revenue streams through multiple services, across multiple locations and channels, quickly.

 

•

Optimize their business costs to enable the redeployment of capital to support business growth and transformation.

 

•

Protect and maintain existing revenue streams by improving service delivery that drives higher customer satisfaction and increases retention.

 

•

Leverage data and insights to better know and understand their customers and deliver exceptional experiences.

 

•

Become future-ready so they can adapt quickly and efficiently to industry changes and innovations.

Market Trends of Communications Industry. Our primary market, the global communications industry, continues to undergo rapid change.  Some key trends are emerging as communications service providers (“CSPs”) try to evolve and compete in this highly complex ecosystem:

 

•

Consumer choice:  Customers have more choices than ever for information, communications, and entertainment services – a shift that is accelerating.  This shift in power to the consumer requires service providers to adopt and deliver new technologies and services which enable a more ubiquitous, flexible, and personalized customer experience.  Service providers – whether more traditional or digital native – are developing offerings to cultivate a more recurring, loyal, and “branded” customer experience.  Increasing importance is placed on “brand” and “experience” as they both now play a larger role in purchasing decisions.  The customer experience will determine the winners and losers in this “always connected” digital world.  

3

 

 

•

Competitive landscape:  The proliferation of digital native service providers (e.g., Amazon, Apple, Facebook, Google, Netflix, etc.) has changed the competitive landscape forever.  This has forced traditional providers to evaluate the viability of their existing business models, including scale, breadth of offerings, speed to react, and customer experience, and to evolve their businesses to remain not only relevant, but competitive, innovative, and thriving.  While consolidation continues between traditional CSPs and content providers (e.g., AT&T and Time Warner Inc.), companies are also scaling their offerings through acquisitions within their respective media (e.g., Disney and 21st Century Fox, Comcast and Sky) and communications industries (e.g., T-Mobile and Sprint).  Direct-to-consumer offerings are becoming more prevalent, (e.g., Disney+ and Comcast’s Peacock) and cooperation not only with new partners, but even among competitors (e.g., Netflix and Amazon Prime Video and traditional cable operators) is accelerating.

 

•

Technology: Fueled by the intersection of artificial intelligence, the Internet of Things (“IoT”), cloud technologies, and analytics, service providers are fundamentally changing the way they get their products to market and engage with their customers.  5G technologies will propel the expansion of IoT and sensor-enabled services and devices.  IoT will underpin the
“service-ification” of offerings — the transition of routine activities and purchases (e.g., checking gas meters, driving a car, buying groceries, etc.) to on demand services and pervasive consumer relationships (e.g., only servicing meters that show faults, optimizing parking spots, recommending dinner meals, etc.).  To meet the requirements of this hyper-connected ecosystem (speed-to-market, agility, scalability cost structure), service providers are transitioning their legacy technology infrastructure to a combination of private and public cloud technologies to support billions of device connections.  

 

•

New Revenue Sources:  CSPs are facing increased pressure to find new revenue sources, while also managing their cost structure and quality of service delivery during their business transformation.  They are navigating declining revenue and profits associated with their traditional services such as wireline voice and video as a result of new or increased competition.  In order to offset these declines, CSPs are increasingly looking for ways to improve their cost structure, grow through acquisitions, and launch new revenue-generating services with minimal capital investment. The result is that many CSPs are cutting costs associated with their traditional systems, integrating disparate acquired business operations, and launching new digital services with more flexible, lower-cost solutions.

Overall, these market trends drive the demand for scalable, flexible, and cost-efficient revenue management, customer experience, and payment solutions, which we believe will provide our clients opportunities to monetize and grow revenue from their customers in this age of digital transformation.  As a result, we have historically invested meaningfully in research and development (“R&D”) and have acquired companies that enable us to expand our solutions in a timely and efficient manner. We believe that our scalable, modular, and flexible solutions, combined with our rich domain expertise and ability to effectively migrate clients to our solutions, provide the clients with proven solutions to improve their profitability and their customers’ experiences.  We have specifically built our solutions to offer service providers a phased, incremental approach to transforming their businesses, thereby reducing the business interruption risk associated with this evolution.

Business Strategy

Our Mission is to deliver innovative engagement solutions that help our clients acquire, monetize, engage with, and retain their customers.  We do this by focusing on three goals:

Energizing and developing our Employees.  Our people make us exceptional and separate us from our competition.  They are ambassadors of the CSG brand and values; they are the point of connection with our clients, for each other, and within our communities.

Delighting our Clients.  Our clients depend on us to help them achieve their business objectives.  We’ve established a reputation for doing what we say, being easy to do business with, and delivering highly scalable, robust solutions.  This reputation has resulted in our becoming a trusted enabler and partner to our clients.

Delivering stockholder value.  Our responsibility is to deliver long-term value to shareholders by delivering growth profitably.  We achieve this through thoughtfully investing in our business and returning an appropriate amount of capital to stockholders.

We believe that successful execution of our goals will allow us to grow revenues and earnings, and therefore, create long-term value for our clients, employees, and stockholders.

4

 

Our strategic focus to accomplish our goals is as follows:

Drive Profitable Growth through Long-Term Relationships:  Our relentless focus on our clients is built upon providing market-leading solutions, world-class operations, delivery capabilities and services, and helping our clients solve their toughest challenges.  By building strong, long-term relationships based on trust and by delivering on our commitments (i.e., doing what we say), our clients stay with us.

Lead with Technology Innovation:  We believe that our broad portfolio of on-premise, cloud and pre-integrated solutions give service providers a competitive advantage.  These solutions allow service providers to efficiently manage their traditional businesses while being able to quickly deliver new digital services and a more personalized and relevant experience to their consumers.  We continually add new relevant capabilities to what we do as a company, both in terms of our people and our solutions.  

Deliver an Exceptional Customer Experience:  We believe that we deliver more business value by having developed a long track record of doing what we say and being easy to do business with.  We do this by putting the client at the heart of our decision-making which is always directed at improving our agility, delivery capabilities, operational excellence, efficiency and reliability to delight and enable our clients’ success.

Attract and Retain Talent:  In order to maintain our competitiveness in the market, we must foster a culture in which our people can do their best work.  We do this by investing in our people and programs that foster a culture of innovation, collaboration and professional fulfillment.

In short, we believe our strategy is a key enabler to help our clients compete more effectively and successfully in an evolving market.

Description of Business

 

Key Clients. We work with the leading communication service providers located around the world.  A partial list of our key clients as of December 31, 2019 is included below:  

 

Altice

  

Eastlink

América Móvil

 

Formula One

AT&T

 

JPMorgan Chase

Bharti Airtel

  

Liberty Latin America

Charter Communications, Inc.  (“Charter”)

 

Maximus

CK Hutchison Holdings

 

MTN

Comcast Corporation (“Comcast”)

  

Telefónica

Deutsche Telekom

 

Telstra

DISH Network Corporation (“DISH”)

 

Verizon

Clients that represented 10% or more of our revenues for 2019 and 2018 were as follows (in millions, except percentages):

 

 

  

2019

 

 

2018

 

 

  

Amount

 

  

% of Revenues

 

 

Amount

 

  

% of Revenues

 

Comcast

  

$

229

 

 

 

23

% 

 

$

221

 

 

 

25

% 

Charter

  

 

195

 

 

 

20

% 

 

 

179

 

 

 

20

% 

See the Significant Client Relationships section of our Management’s Discussion and Analysis (“MD&A”) for additional information regarding our business relationships with these key clients.

Research and Development.  Our clients around the world are facing competition from new entrants and at the same time, are deploying new services at a rapid pace and dramatically increasing the complexity of their business operations. Therefore, we continue to make meaningful investments in R&D to ensure that we stay ahead of our clients’ needs and advance our clients’ businesses as well as our own. We believe our value proposition is to provide solutions that help our clients ensure that each customer interaction is an opportunity to create value and deepen the business relationship.

Our total R&D expenses for 2019 and 2018 were $128.0 million and $124.0 million, respectively, or approximately 13% and 14%, respectively, of our total revenues.  We anticipate the level of R&D investment in the near-term to be relatively consistent with that of 2019.

There are certain inherent risks associated with significant technological innovations.  Some of these risks are described in this report in our Risk Factors section below.

5

 

Solutions and Services.  Our solutions and services help companies with complex transaction-centric business models manage the opportunities and challenges associated with accurately capturing, managing, generating, and optimizing the revenue associated with an immense volume of customer interactions and then manage the intricate nature of those customer relationships.  Below is a high-level overview:

 

•

Our solutions provide global service providers with a robust, integrated real-time revenue management framework in either a cloud-based or stand-alone environment to optimize and monetize transactions at every stage of the customer lifecycle.  Our flexible, configurable business support systems (BSS) help more than 500 companies worldwide monetize and digitally enable the experiences of our client’s customers.  We support more than 520 million end users worldwide on behalf of our clients, managing every aspect from billing to customer care to partner settlement, and we help our clients quickly launch and monetize new services while having the flexibility to keep up with rapidly changing customer demands and markets that are continually evolving.  This includes our public cloud based, private cloud and on-premise solutions, such as our Advanced Convergent Platform (“ACP”), Ascendon, Singleview, Total Service Mediation (“TSM”) and Wholesale Business Management Solution (“WBMS”) platforms.

 

•

Our solutions offer a diverse and integrated suite of tools designed to manage and improve every aspect of the customer experience, from onboarding to upgrades, payments to field service management. These solutions allow clients to connect with their customers anytime, anywhere, on any channel, at any stage in their customer experience journey.  We are an industry leader in supporting omni-channel communications between our clients and their customers, processing more than 1.5 billion voice, SMS/text, print, and e-mail messages each year.  More than 75,000 of our clients’ field technicians and dispatchers complete over 100 million work orders per year by leveraging our field service management solutions to optimize routing and provide real-time insights into arrival times for their customers.  We help clients deliver a unique customer experience across both traditional and digital channels.

 

•

We empower our clients with options to manage and process payments from their customers by offering an advanced, cloud-based, integrated suite of solutions across a variety of industries.  Our broad offering and strategic partnerships with more than 50,000 merchants, resellers, and independent software vendors has fueled growth and success in the integrated payments space.

 

•

We leverage our 35+ year history in running highly scalable, complex business support solutions to improve operational efficiencies and effectiveness.  For our managed services clients, we assume long-term responsibility for delivering our software solutions and related operations under a defined scope and specified service levels.  Under managed services agreements, we may operate software products (primarily our software solutions) on behalf of our clients: (i) out of a client’s data center; (ii) out of a data center we own and operate; or (iii) out of a third-party data center (including public cloud providers) we contract with for such services.  

Historically, a substantial percentage of our total revenues have been generated from our revenue management and customer experience solutions.  These solutions are expected to provide a large percentage of our total revenues in the foreseeable future as well.

Business Acquisitions. Our strategy includes acquiring assets and businesses which provide the technology and personnel to expedite our solutions and services development efforts, provide complementary solutions and services, increase market share, and/or provide access to new markets and clients.

Professional Services. We employ professional services experts globally who bring a wide-ranging expertise – including solution architecture, project management, systems implementation, and business consultancy – to every project.  We apply a structured methodology to each of our engagements, leveraging consistent world-class processes, best-practice programs, and systemized templates in the development of our solutions.

Sales and Marketing. We organize our sales efforts to clients primarily within our geographically dispersed, dedicated account teams, with senior level account managers who are responsible for new revenues and renewal of existing contracts within a client account.   The account teams are supported by sales support personnel who are experienced in the various solutions and services that we provide.

6

 

Competition. The market for revenue management solutions and services in the communications industry, as well as in other industries we serve, is highly competitive.  We compete with both independent providers and in-house developers of customer management systems.  We believe that our most significant competitors in our primary markets are Amdocs Limited and NEC Corporation; network equipment providers such as Ericsson and Huawei; and client-developed internal solutions.  Some of our actual and potential competitors have substantially greater financial, marketing, and technological resources than us and in some instances, we may partner and collaborate with our competitors on large opportunities and projects.

We believe service providers in our industry use the following criteria when selecting a vendor for the mission critical management of their revenue, customer experience, and digital ecosystem: (i) functionality, scalability, flexibility, interoperability, and architecture of the software assets; (ii) the breadth and depth of pre-integrated product solutions; (iii) solution quality, client service, and support; (iv) operational excellence and reliability; (v) quality of R&D efforts; and (vi) total cost of ownership.  We believe that our solutions allow us to compete effectively in these areas.

Proprietary Rights and Licenses

We rely on a combination of trade secret, copyright, trademark, and patent laws in the United States (“U.S.”) and similar laws in other countries, and non-disclosure, confidentiality, and other types of contractual arrangements to establish, maintain, and enforce our intellectual property rights in our solutions.  Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented, or misappropriated.  Although we hold a select number of patents and patent applications on some of our newer solutions, we do not rely upon patents as a primary means of protecting our rights in our intellectual property.  In any event, there can be no assurance that our patent applications will be approved, that any issued patents will adequately protect our intellectual property, or that such patents will not be challenged by third parties.  Also, much of our business and many of our solutions rely on key technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms.  Our failure to adequately establish, maintain, and protect our intellectual property rights could have a material adverse impact on our business, financial position, and results of operations.  For a description of the risks associated with our intellectual property rights, see “Item 1A - Risk Factors - Failure to Protect Our Intellectual Property Rights or Claims by Others That We Infringe Their Intellectual Property Rights Could Substantially Harm Our Business, Financial Position and Results of Operations.”

Employees

As of December 31, 2019, we had a total of 4,339 employees, an increase of 374 employees when compared to the number of employees we had as of December 31, 2018. Our success is dependent upon our ability to attract and retain qualified employees.  We are subject to various foreign employment laws and regulations based on the country in which our employees are located. We believe that our relations with our employees are good.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy materials, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on our website at www.csgi.com.  Additionally, these reports are available on the SEC’s website at www.sec.gov.  

Code of Conduct and Business Ethics

A copy of our Code of Conduct and Business Ethics (the “Code of Conduct”) is maintained on our website.  Any future amendments to the Code of Conduct, or any future waiver of a provision of our Code of Conduct, will be timely posted to our website upon their occurrence.  Historically, we have had minimal changes to our Code of Conduct, and have had no waivers of a provision of our Code of Conduct.

 


7

 

Item 1A.Risk Factors

We or our representatives from time-to-time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in MD&A contained in our various Securities and Exchange Commission (“SEC”) filings or orally in conferences or teleconferences. We wish to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure, to the fullest extent possible, the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995.

We operate in rapidly changing and evolving markets throughout the world addressing the complex needs of communication service providers, financial institutions, and many others, and as a result, new risk factors will likely emerge and currently identified risk factors will likely evolve in their scope. Further, as we enter new market sectors as well as new geographic markets, we could be subject to new regulatory requirements that increase the risk of non-compliance and the potential for economic harm to us and our clients. Accordingly, the risk factors and any forward-looking statements are qualified in their entirety by reference to and are accompanied by the following meaningful cautionary statements:

 

•

If any of the following risk factors would occur, it could have a material adverse effect on our business, financial position, results of operations, and/or trading price of our common stock.

 

•

This list of risk factors is likely not exhaustive and management cannot predict all of the relevant risk factors, nor can it assess the potential impact, if any, of such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may create.

 

•

There can be no assurances that forward-looking statements will be accurate indicators of future actual results, and it is likely that actual results will differ from results projected in the forward-looking statements, and that such differences may be material.

We Derive a Significant Portion of Our Revenues From a Limited Number of Clients, and the Loss of the Business of a Significant Client Could Have a Material Adverse Effect on Our Financial Position and Results of Operations.

Over the past decade, the global communications industry has experienced significant consolidation, resulting in a large percentage of the market being served by a limited number of communication service providers with greater size and scale, and there are possibilities of further consolidation. Consistent with this market concentration, we generate over 40% of our revenues from our two largest clients, which are (in order of size) Comcast and Charter, which each individually accounted for over 10% or more of our total revenues. See the Significant Client Relationships section of MD&A for key renewal dates and a brief summary of our business relationship with these clients.

There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of clients. Such risks are that a significant client could: (i) undergo a formalized process to evaluate alternative providers for solutions and services we provide; (ii) terminate or fail to renew their contracts with us, in whole or in part for any reason; (iii) significantly reduce the number of customer accounts processed on our solutions, the price paid for our solutions and services, or the scope of solutions and services that we provide; or (iv) experience significant financial or operating difficulties.

Our industry is highly competitive, and as a result, it is possible that a competitor could increase its footprint and share of customers serviced at our expense or a client could develop their own internal solutions. While our clients may incur some costs in switching to our competitors or their own internally-developed solutions, they may do so for a variety of reasons, including: (i) price; (ii) dissatisfaction with our solutions or service levels; or (iii) dissatisfaction with our relationships.

The Delivery of Our Solutions is Dependent on a Variety of Computing and Processing Environments and Communications Networks Which May Not Be Available or May Be Subject to Security Attacks.

Our solutions are generally delivered through a variety of sources including public cloud, third-party data center and other service providers, and internally-operated computing and processing environments (collectively referred to hereafter in this section as “Systems”). We and/or end users are connected to the Systems through a variety of public and private communications networks, which we will collectively refer to herein as “Networks.” Our solutions are generally considered to be mission critical customer management systems by our clients. As a result, our clients are highly dependent upon the high availability and uncompromised security of the Networks and Systems to conduct their business operations.

8

 

Networks and Systems are subject to the risk of an extended interruption, outage, or security breach due to many factors such as: (i) changes to the Systems and Networks for such things as scheduled maintenance and technology upgrades, or conversions to other technologies, service providers, or physical location of hardware; (ii) failures or lack of continuity of services from public cloud or third-party data center and other service providers; (iii) defects in software program(s); (iv) human and machine error; (v) acts of war and/or nature; (vi) intentional, unauthorized attacks from computer “hackers”, or cyber-attacks; and (vii) using the Systems to perpetrate identity theft through unauthorized authentication to our clients’ customers’ accounts. Most recently, the marketplace is experiencing an ever-increasing exposure to both the number and severity of cyber-attacks.  In addition, we continue to expand our use of third-party Systems and Networks with our solution offerings thereby permitting, for example, our clients’ customers to use the Internet to review account balances, order services or execute similar account management functions. Access to Networks and Systems via the Internet has the potential to increase their vulnerability to unauthorized access and corruption, as well as increasing the dependency of the Systems’ reliability on the availability and performance of the Internet and end users’ infrastructure they obtain through other third-party providers.

The method, manner, cause and timing of an extended interruption, outage, or security breach in third-party and/or the Networks or Systems are impossible to predict. As a result, there can be no assurances that these Networks and Systems will not fail, not suffer a security breach or that the third-party and/or our business continuity or remediation plans will adequately mitigate the negative effects of a disruption or security breach to the Networks or Systems. Further, our property, technology errors and omissions, contractual relationship with third-party providers, and business interruption insurance may not adequately compensate us for losses that we incur as a result of such interruptions or security breaches. Should the Networks or Systems: (i) experience an extended interruption or outage; (ii) have their security breached; and/or (iii) have their data lost, corrupted or otherwise compromised, it would impede our ability to meet solution and service delivery obligations, and likely have an immediate impact to the business operations of our clients. This would most likely result in damaging our reputation as well as our long-term ability to attract and retain new clients. The loss of confidential information could result in losing the customers’ confidence, as well as imposition of penalties, fines, and/or damages.

The Occurrence or Perception of a Security Breach or Disclosure of Confidential Personally Identifiable Information Could Harm Our Business.

In providing solutions to our clients, we process, transmit, and store confidential and personally identifiable information (“PII”), including social security numbers, health-related information, and financial information. Our treatment of such information is subject to contractual restrictions and federal, state, and foreign data privacy laws and regulations, which continue to evolve resulting in greater scrutiny over the protection of PII. In response to these evolving restrictions and regulations, including the European Union’s adoption of the General Data Protection Regulation (“GDPR”) and California Consumer Privacy Act (“CCPA”), we leverage various data protection strategies (e.g., encryption) and have implemented measures to protect against unauthorized access to such information, and comply with these laws and regulations. These measures include standard industry practices (e.g. payment card industry (“PCI”) requirements), periodic security reviews of our systems by independent parties, secure development practices, network firewalls, policy directives, procedural controls, intrusion detection systems, and antivirus applications. Due to the inherent risks and complexities to defend against cybercrime, these measures may fail to adequately protect this information. Any failure on our part to protect the privacy of PII or comply with data privacy laws and regulations may subject us to contractual liability and damages, loss of business, damages from individual claimants, substantial fines/penalties, criminal prosecution, and unfavorable publicity. Even the mere perception of a security breach or inadvertent disclosure of PII could damage our reputation and inhibit market acceptance of our solutions. In addition, third-party vendors that we engage to perform services for us may unintentionally release PII or otherwise fail to comply with applicable laws and regulations. As new laws and regulations emerge and evolve our compliance costs could increase substantially.

We May Not Be Able to Efficiently and Effectively Implement New Solutions or Migrate Clients onto Our Solutions.

Our continued growth plans include the implementation of new solutions, as well as migrating both new and existing clients to our solutions. Such implementations or migrations (collectively referred to hereafter in this section as “implementations”), regardless of whether they involve new solutions or new customers, have become increasingly more difficult because of the sophistication, complexity, and interdependencies of the various software and network environments impacted, combined with the increasing complexity of the clients’ underlying business processes. In addition, the complexity of the implementations increases when the arrangement includes other vendors participating in the project, including but not limited to, prime and subcontractor relationships with our company. For these reasons, implementations subject our clients to potential business disruption, which could cause them to delay or even cancel future implementations.  

As a result, there is a risk that we may experience cancellations, delays, or unexpected costs associated with implementations. In addition, our inability to complete implementations in an efficient and effective manner could damage our reputation in the market place, reducing our opportunity to grow our business with both new and existing clients.

9

 

We May Not Be Successful in the Integration or Achievement of Financial Targets of Our Acquisitions.

As part of our growth strategy, we seek to acquire assets, technology, and businesses which will provide the technology and personnel to expedite our solutions and services development efforts, provide complementary solutions, or provide access to new markets and clients.

Acquisitions involve a number of risks and difficulties, including: (i) expansion into new markets and business ventures; (ii) the requirement to understand local business practices; (iii) the diversion of management’s attention to the assimilation of acquired operations and personnel; (iv) being bound by acquired client or vendor contracts with unfavorable terms; and (v) potential adverse effects on a company’s operating results for various reasons, including, but not limited to, the following items: (a) the inability to achieve financial targets; (b) the inability to achieve certain integration expectations, operating goals, and synergies; (c) costs incurred to exit current or acquired contracts or activities; (d) costs incurred to service any acquisition debt; and (e) the amortization or impairment of acquired intangible assets.

Due to the multiple risks and difficulties associated with any acquisition, there can be no assurance that we will be successful in achieving our expected strategic, operating, and financial goals for any such acquisition.

Our Business is Highly Dependent on the Global Communications Industry.

Since a large percentage of our revenues are generated from clients that operate within the global communications industry, we are highly dependent on the health and the business trends occurring within this industry (in particular for our North American cable and satellite clients).  Key factors within this industry that could potentially impact our clients’ businesses, and thus, our business, are as follows:

 

•

Key Market Conditions:  The global communications industry has undergone significant fluctuations in growth rates and capital investment cycles in the past decade.

In addition, changes in demand for traditional services for CSPs are causing them to seek new revenue sources, while also managing their cost structure and quality of service delivery during their business transformation. The result is that many CSPs are delaying investment decision on maintaining/advancing legacy systems, and/or making investments in new solutions to drive their business forward into new areas.

 

•

Market Consolidation:  The pace of consolidation within the industry continues to accelerate as communication service providers look to increase the scale of their operations and footprint within the entire communications ecosystem.  Potential byproducts of this consolidation that could impact us are as follows: (i) there could be fewer providers in the market, each with potentially greater bargaining power and economic leverage due to their larger size, which may result in our having to lower our prices to remain competitive, retain our market share, or comply with the surviving client’s current more favorable contract terms, and (ii) the controlling entity in a consolidation that is not our current client, may acquire one of our existing clients and choose to consolidate both entities onto the controlling entity’s software platform, thus reducing and possibly eliminating our business with our existing client.

Also, as consolidated entities execute upon their revenue and operational synergies, there is generally a slowdown in decision-making on discretionary spending and/or on new business initiatives.  While this could be a timing issue only, it could impact quarterly and annual results.  

 

•

Increased Competition:  Our clients operate in a highly competitive environment. Competitors range from traditional wireline and wireless providers to new entrants like new digital native service providers such as Facebook, Apple, Netflix, Google, and Amazon. Should these competitors be successful in their strategies, it could threaten our clients’ market share, pricing power, and level of services delivered.  These threats could negatively impact our clients’ revenues, putting pressure on our source of revenues, as generally speaking, these companies do not use our core solutions and there can be no assurance that new entrants will become our clients. In addition, demand for spectrum, network bandwidth and content continues to increase and any changes in the regulatory environment could have a significant impact to not only our clients’ businesses, but in our ability to help our clients be successful.

The above industry factors are impacting our clients’ businesses, and thus could cause delays, cancellations/loss of business, and/or downward pricing pressure on our sales and services. This could cause us to either fall short of revenue expectations or have a cost model that is misaligned with revenues.  

10

 

We May Not Be Able to Respond to Rapid Technological Changes.

The market for business support solutions, such as customer care, billing solutions, and payment solutions is characterized by rapid changes in technology and is highly competitive with respect to the need for timely solution innovations and new solution introductions. As a result, we believe that our future success in sustaining and growing our revenues depends upon: (i) our ability to continuously expand, adapt, modify, maintain, and operate our solutions to address the increasingly complex and evolving needs of our clients without sacrificing the reliability or quality of the solutions; (ii) the integration of acquired technologies and their widely distributed, complex worldwide operations; and (iii) creating and maintaining an integrated suite of customer care and billing solutions, which are portable to new verticals.  In addition, the market is demanding that our solutions have greater architectural flexibility and interoperability, and that we are able to meet the demands for technological advancements to our solutions at a greater pace. Our attempts to meet these demands subject our R&D efforts to greater risks.

As a result, substantial and effective R&D and solution investment will be required to maintain the competitiveness of our solutions in the market. Technical problems may arise in developing, maintaining, integrating, and operating our solutions as the complexities are increased. Development projects can be lengthy and costly, and may be subject to changing requirements, programming difficulties, a shortage of qualified personnel, and/or unforeseen factors which can result in delays. In addition, we may be responsible for the implementation of new solutions and/or the conversion of clients to new solutions, and depending upon the specific solution, we may also be responsible for operations of the solution.

There is an inherent risk in the successful development, implementation, conversion, integration, and operation of our solutions as the technological complexities, and the pace at which we must deliver these solutions to market, continue to increase. The risk of making an error that causes significant operational disruption to a client, or results in incorrect computer processing of customer or vendor data that we perform on behalf of our clients, increases proportionately with the frequency and complexity of changes to our solutions and new delivery models. There can be no assurance: (i) of continued market acceptance of our solutions; (ii) that we will be successful in the development of enhancements or new solutions that respond to technological advances or changing client needs at the pace the market demands; or (iii) that we will be successful in supporting the implementation, conversion, integration, and/or operations of enhancements or new solutions.

A Reduction in Demand for Our Key Business Support Solutions Could Have a Material Adverse Effect on Our Financial Position and Results of Operations.

Historically, a substantial percentage of our total revenues have been generated from our core cloud-based , ACP, and related solutions. These solutions are expected to continue to provide a large percentage of our total revenues in the foreseeable future. Any significant reduction in demand for ACP and related solutions could have a material adverse effect on our business.

We May Be Subject to Payments Regulation in the U.S.  

Many states in which we operate have laws that govern payment activities and have implemented various definitions and licensing requirements for entities deemed to be money transmitters, including licensure. If we are deemed to be money transmitters in such states and fail to meet such state requirements at any time, we could be subject to enforcement actions and financial penalties and other costs.  An enforcement action could result in restrictions upon, or a prohibition on engaging in, the business of money transmission in one or more states and it could delay or prevent us from obtaining a money transmitter license in one or more states.  Enforcement actions could also result in reputational harm to our business and force us to cease or limit certain aspects of our business or prevent us from growing our business.  Further, laws governing payment activities may evolve and changes in such law could affect our ability to provide our solutions or services in the same form and on the same terms as we have historically, or at all.  

If we must apply for money transmitter licenses in one or more states, there can be no assurance that we will be able to obtain any such licenses and such application process may be prolonged and costly.  During the application process, states may impose disclosure and vetting requirements of persons deemed in control of our business. In addition, there are substantial costs and potential solution changes involved in maintaining such licenses, and we could be subject to fines or other enforcement action if we are found to have violated applicable federal, state, and local laws and regulations, including those related to licensing and supervision, anti-money laundering, the Bank Secrecy Act, financial privacy, and cybersecurity and data security.  These factors could impose substantial additional costs and involve considerable delay to the development or provision of our solutions or services, or could require significant and costly operational changes or prevent us from providing our solutions or services in a given market. These limitations may adversely affect our ability to grow our business. 

We may also be subject to card association and network rules and requirements, and violations of such rules and requirements could result in fines or the inability to use third-party networks to conduct our business.

11

 

Failure to Deal Effectively with Fraud, Fictitious Transactions, Bad Transactions, and Negative Experiences Could Increase Our Loss Rate and Harm Our Payment Processing Business, and Could Severely Diminish Merchant and Consumer Confidence in and Use of Our Services.

In the event that merchants do not fulfill their obligations to consumers or a consumer disputes a transaction for various reasons, we may incur losses as a result of chargebacks and/or claims from consumers. We would seek to recover such losses from the merchant, however, we may not be able to recover the amounts in full if the merchant is unwilling or unable to pay.  While we have established financial reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves on individual merchants may be insufficient. We may also incur losses from claims that the consumer did not authorize the purchase, from consumer fraud, from erroneous transactions, and as a result of consumers who have closed bank accounts or have insufficient funds in their bank accounts to satisfy payments. In addition, if losses incurred by us related to payment card transactions become excessive, we could lose the right to process credit card transactions, which would significantly impact our payment processing business. We have taken measures to detect and reduce the risk of fraud, including underwriting and risk management procedures and processes, but these measures need to be continually updated to address emerging means of perpetrating fraud or to accommodate new solution offerings.

Failure to Attract and Retain Our Key Management and Other Highly Skilled Personnel Could Have a Material Adverse Effect on Our Business.

Our future success depends in large part on the continued service of our key management, sales, product development, professional services, and operational personnel. We believe that our future success also depends on our ability to attract and retain highly skilled technical, managerial, operational, and sales and marketing personnel, including, in particular, personnel in the areas of R&D, professional services, and technical support. Competition for qualified personnel at times can be intense, particularly in the areas of R&D, conversions, software implementations, and technical support. This risk is heightened with a widely dispersed customer base and employee populations. For these reasons, we may not be successful in attracting and retaining the personnel we require, which could have a material adverse effect on our ability to meet our commitments and new solution delivery objectives.

Variability of Our Quarterly Revenues and Our Failure to Meet Revenue and Earnings Expectations Would Negatively Affect the Market Price of Our Common Stock.

From time to time, we may experience variability in quarterly revenues and operating results. Common causes of failure to meet revenue and operating expectations include, among others:

 

•

Inability to close and/or recognize revenue on certain transactions in the period originally anticipated;

 

•

Inability to accurately forecast payment processing transaction volumes and related transaction costs;

 

•

Delays in renewal of multiple or individually significant agreements;

 

•

Inability to renew existing client or vendor arrangements at anticipated rates;

 

•

Delays in timing of initiation and/or implementation of significant projects or arrangements;

 

•

Inability to meet client expectations materially within our cost estimates;

 

•

Changes in spending and investment levels;

 

•

Foreign currency fluctuations; and

 

•

Economic and political conditions.

Should we fail to meet our revenue and earnings expectations of the investment community, by even a relatively small amount, it could have a disproportionately negative impact upon the market price of our common stock.

We May be Subject to Various Anti-Money Laundering and Counter-Terrorist Financing Laws and Regulations.

We may be subject to various anti-money laundering (“AML”) and counter-terrorist financing laws and regulations that prohibit, among other things, our involvement in processing the proceeds of criminal activities. We maintain an AML Compliance Policy and Procedure applicable to our payments processing business which policy is intended to comply with any applicable U.S. federal requirements.  The laws or their application, our interpretation of the laws, and/or our services may change so that we could be subject to additional regulation and incur additional costs of compliance. We may not be able to meet additional regulatory requirements or the cost of adhering to such requirements could be substantial or could severely impact our ability to continue to maintain and/or grow our payments processing business or retain merchants or partners. The regulations of other countries and/or any increased compliance costs associated with such regulations, could prevent us from entering new markets for our services.

12

 

Our Global Operations Subject Us to Additional Risks.

We currently conduct a portion of our business outside the U.S. We are subject to certain risks associated with operating internationally including the following items:

 

•

Our solutions not meeting local requirements;

 

•

Fluctuations in foreign currency exchange rates for which a natural or purchased hedge does not exist or is ineffective;

 

•

Staffing and managing of our foreign operations;

 

•

Longer sales cycles for new contracts;

 

•

Longer collection cycles for client billings or accounts receivable, as well as heightened client collection risks, especially in countries with highly inflationary economies and/or restrictions on the movement of cash out of the country;

 

•

Trade barriers;

 

•

Governmental sanctions;

 

•

Complying with varied legal and regulatory requirements across jurisdictions;

 

•

Reduced protection for intellectual property rights in some countries;

 

•

Inability to recover value added taxes and/or goods and services taxes in foreign jurisdictions;

 

•

Political instability and threats of terrorism and/or war;  

 

•

A potential adverse impact to our overall effective income tax rate resulting from, among other things:

 

•

Operations in foreign countries with higher tax rates than the U.S.;

 

•

The inability to utilize certain foreign tax credits; and

 

•

The inability to utilize some or all of losses generated in one or more foreign countries.

Our Global Operations Require Us To Comply With Applicable U.S. and International Laws and Regulations.

Doing business on a global basis requires our company and our subsidiaries to comply with the laws and the regulations of the U.S. government and various international jurisdictions.  In addition, the number of countries enacting anti-corruption laws and related enforcement activities is increasing. These regulations place restrictions on our operations, trade practices and trade partners. In particular, our global operations are subject to U.S. and foreign anti-corruption laws and regulations such as the Foreign Corrupt Practices Act (“FCPA”), the U.K. Anti-Bribery Act and economic sanction programs administered by the Office of Foreign Assets Control (“OFAC”).  

The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business. In addition, the FCPA imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payment can be made. As part of our business, we regularly deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. In addition, some of the international locations in which we operate lack a developed legal system and have higher than normal levels of corruption. We inform our personnel and third-party sales representatives of the requirements of the FCPA and other anti-corruption laws, including, but not limited to their reporting requirements. We have also developed and will continue to develop and implement systems for formalizing contracting processes, performing due diligence on agents and partners while improving our recordkeeping and auditing practices regarding these regulations. However, there is no guarantee that our employees, third-party sales representatives or other agents have not or will not engage in conduct undetected by our processes and for which we might be held responsible under the FCPA or other anti-corruption laws.

Economic sanctions programs restrict our business dealings with certain countries and individuals. As a global provider, we are exposed to a heightened risk of violating OFAC regulations. Violations of these laws and regulations are punishable by civil penalties, including fines, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. While we actively screen and monitor the global companies and individuals that we do business with, utilizing a risk-based approach, there is no guarantee that we have not or will not, through the lack of accurate information, changing client business structures, process failure, oversight, or error, have violations occur.

13

 

Our Use of Open Source Software May Subject Us to Certain Intellectual Property-Related Claims or Require Us to Re-Engineer Our Software, Which Could Harm Our Business.

We use open source software in connection with our solutions, processes, and technology. Companies that use or incorporate open source software into their products have, from time to time, faced claims challenging their use, ownership and/or licensing rights associated with that open source software. As a result, we could be subject to suits by parties claiming certain rights to what we believe to be open source software. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code in their software and make any derivative works of the open source code available on unfavorable terms or at no cost. In addition to risks related to license requirements, use of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties, support, or controls with respect to origin of the software. Use of open source software also complicates compliance with export-related laws. While we take measures to protect our use of open source software in our solutions, open source license terms may be ambiguous, and many of the risks associated with usage of open source software cannot be eliminated. If we were found to have inappropriately used open source software, we may be required to release our proprietary source code, re-engineer our software, discontinue the sale of certain solutions in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our development efforts.

We Face Significant Competition in Our Industry.

The market for our solutions is highly competitive. We directly compete with both independent providers and in-house solutions developed by existing and potential clients. In addition, some independent providers are entering into strategic alliances with other independent providers, resulting in either new competitors, or competitors with greater resources. Many of our current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than our company, many with significant and well-established domestic and international operations. There can be no assurance that we will be able to compete successfully with our existing competitors or with new competitors.

Failure to Protect Our Intellectual Property Rights or Claims by Others That We Infringe Their Intellectual Property Rights Could Substantially Harm Our Business, Financial Position and Results of Operations.

We rely on a combination of trade secret, copyright, trademark, and patent laws in the U.S. and similar laws in other countries, and non-disclosure, confidentiality, and other types of contractual arrangements to establish, maintain, and enforce our intellectual property rights in our solutions. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented, or misappropriated. Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential information. Others may independently discover trade secrets and proprietary information, which may complicate our assertion of trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the U.S. Therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third party copying or use, which could adversely affect our competitive position.

Although we hold a limited number of patents and patent applications on some of our solutions, we do not rely upon patents as a primary means of protecting our rights in our intellectual property. In any event, there can be no assurance that our patent applications will be approved, that any issued patents will adequately protect our intellectual property, or that such patents will not be challenged by third parties. Also, much of our business and many of our solutions rely on key technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms.

Finally, third parties may claim that we, our clients, licensees or other parties indemnified by us are infringing upon their intellectual property rights. Even if we believe that such claims are without merit, they can be time consuming and costly to defend and distract management’s and technical staff’s attention and resources. Claims of intellectual property infringement also might require us to redesign affected solutions, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our solutions. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology on reasonable pricing terms or at all, or substitute similar technology from another source, our business could be adversely impacted. Our failure to adequately establish, maintain, and protect our intellectual property rights could have a material adverse effect on our business.

14

 

We May Incur Material Restructuring Charges in the Future.

In the past, we have recorded restructuring charges related to involuntary employee terminations, various facility abandonments, and various other restructuring and reorganization activities. We continually evaluate ways to reduce our operating expenses through new restructuring opportunities, including more effective utilization of our assets, workforce, and operating facilities. As a result, there is a risk, which is increased during economic downturns and with expanded global operations, that we may incur material restructuring or reorganization charges in the future.

Substantial Impairment of Long-lived Assets in the Future May Be Possible.

As a result of various acquisitions and the growth of our company over the last several years, we have approximately $223 million of long-lived assets other than goodwill (principally, property and equipment, software, acquired client contracts, and client contract costs) as of December 31, 2019. Long-lived assets are required to be evaluated for possible impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We utilize our market capitalization and/or cash flow models as the primary basis to estimate the fair value amounts used in our long-lived asset impairment valuations. If an impairment was to be recorded in the future, it could materially impact our results of operations in the period such impairment is recognized, but such an impairment charge would be a non-cash expense, and therefore would have no impact on our cash flows.  

  

Item 1B.

Unresolved Staff Comments

None.

 

Item 2. Properties

As of December 31, 2019, we were operating in over 25 leased sites around the world, representing over 650,000 square feet.

Our corporate headquarters is located in Greenwood Village, Colorado. In addition, we lease office space in the U.S. in Allen, Texas; Atlanta, Georgia; Bloomfield, New Jersey; Chicago, Illinois; Omaha, Nebraska; and Philadelphia, Pennsylvania.  The leases for these office facilities expire in the years 2020 through 2027. We also maintain leased facilities internationally in Australia, Brazil, Canada, Colombia, France, India, Ireland, Malaysia, South Africa, Sweden, United Arab Emirates, and the U.K. The leases for these international office facilities expire in the years 2020 through 2026. We utilize these office facilities primarily for the following: (i) client services, training, and support; (ii) product and operations support; (iii) systems and programming activities; (iv) professional services staff; (v) R&D activities; (vi) sales and marketing activities; and (vii) general and administrative functions.

Additionally, we lease four statement production and mailing facilities totaling approximately 350,000 square feet. These facilities are located in: (i) Omaha, Nebraska; (ii) Crawfordville, Florida; (iii) Austin, Texas; and (iv) Fort Worth, Texas. The leases for these facilities expire in the years 2021 through 2026.

We believe that our facilities are adequate for our current needs and that additional suitable space will be available as required. We also believe that we will be able to either: (i) extend our current leases as they terminate; or (ii) find alternative space without experiencing a significant increase in cost. See Note 6 to our Financial Statements for information regarding our obligations under our facility leases.

 

Item 3.

From time-to-time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. In the opinion of our management, we are not presently a party to any material pending or threatened legal proceedings.

 

Item 4.

Mine Safety Disclosures

Not applicable.

************************************************************************************************

 

15

 

Executive Officers of the Registrant

Our executive officers are Bret C. Griess (President and Chief Executive Officer), Rolland B. Johns (Executive Vice President and Chief Financial Officer), Brian A. Shepherd (Executive Vice President and Group President), and Kenneth M. Kennedy (Executive Vice President, President of Technology and Product).  We have employment agreements with each of the executive officers.

 

Bret C. Griess

President and Chief Executive Officer

Mr. Griess, 51, currently serves as our President and CEO. He joined the Company in 1996 and held a variety of positions in Operations and Information Technology, until being appointed Executive Vice President of Operations in February 2009, Chief Operations Officer in March 2011, and President in June 2015. In January 2016, Mr. Griess was appointed President and CEO and a member of our Board. Mr. Griess holds an M.A. degree in Management and a B.S. degree in Management from Bellevue University in Nebraska, and an A.A.S. degree from the Community College of the Air Force.

 

Rolland B. Johns

Executive Vice President and Chief Financial Officer

Mr. Johns, 50,​ serves as​ CSG’s Executive Vice President and Chief Financial Officer, where he oversees finance, accounting and treasury for the organization. Mr. Johns joined CSG in 2013 as Chief Accounting Officer, and was named to his current position in May 2018. Mr. Johns brings more than 25 years of global finance and accounting expertise to the position. Prior to joining CSG, he was an audit partner at KPMG, serving in many leadership and management roles, including lead audit engagement partner on several large public company engagements in various industries across the globe. Mr. Johns is a member of the AICPA and the Nebraska Society of Certified Public Accountants. He holds a B.S. degree in Accounting from the University of San Diego.

 

Brian A. Shepherd

Executive Vice President and Group President

Mr. Shepherd, 52, joined CSG in 2016. He was named Executive Vice President and Group President of CSG in October 2017. In this position, he leads the profit and loss organization for the entire global organization. Prior to this role, Mr. Shepherd served as Executive Vice President and President of Global Broadband, Cable and Satellite Business from 2016 to 2017, where he focused on accelerating the growth and strategic direction of CSG’s global broadband, cable and direct broadcast satellite business. Mr. Shepherd is an international business expert with strong management, strategy, corporate growth, customer relationship, global sales/service, and cloud transformation experience. In previous executive roles at companies such as TeleTech, Amdocs, DST Innovis, and McKinsey & Company, Mr. Shepherd built a successful history of helping companies drive and achieve their strategic growth initiatives. With more than 25 years of technology and cloud expertise serving global brands in communication, media, financial services, government, healthcare and retail, he has built wide and deep relationships with C-Suite leaders, decision-makers and policy influencers who have shaped these industries globally. Mr. Shepherd graduated Magna cum laude in Economics from Wabash College and received a Master of Business Administration degree from Harvard Business School.

 

Kenneth M. Kennedy

Executive Vice President, President of Technology and Product

Mr. Kennedy, 50, was named President of Technology and Product in October 2017. In this position, he oversees all product development, product management, platform architecture and operations across CSG’s solutions portfolio. His expertise and vision contribute to new innovations that enable CSG’s clients to have more agile and dynamic operations. Prior to this role, Mr. Kennedy served as CSG’s Executive Vice President of Product Development from 2016 to 2017. Prior to this role, he served as CSG’s Chief Technology Officer and Senior Vice President of Product Management, Development and Operations from 2006 to 2016, managing CSG’s software development organization and implementing technology initiatives for CSG’s solution offerings. Prior to CSG, Mr. Kennedy was one of the original founders of Telution where he served as Vice President of Software Development and Professional Services from 1998 to 2006. Prior to Telution, Mr. Kennedy worked at Andersen Consulting where he was responsible for developing highly-scalable distributed software solutions for the manufacturing, financial services, and communications industries. Mr. Kennedy received a Bachelor of Business Administration and Management Information Systems from the University of Notre Dame.

16

 

Board of Directors of the Registrant

Information related to our Board of Directors (the “Board”) is provided below.

 

Donald B. Reed

Mr. Reed, 75, was appointed to the Board in May 2005 and has served as CSG's non-executive Chairman of the Board since January 2010. He is presently retired. He served as CEO of Cable & Wireless Global from 2000 to 2003. Cable & Wireless Global, a subsidiary of Cable & Wireless plc, is a provider of Internet Protocol (“IP”) and data services to business customers in the U.S., United Kingdom, Europe, and Japan. From June 1998 until May 2000, Mr. Reed served Cable & Wireless in various other executive positions. Mr. Reed’s career includes 30 years at NYNEX Corporation (now part of Verizon), a regional telephone operating company. From 1995 to 1997, Mr. Reed served NYNEX Corporation as President and Group Executive with responsibility for directing the company’s regional, national, and international government affairs, public policy initiatives, legislative and regulatory matters, and public relations. Mr. Reed holds a B.A. degree in History from Virginia Military Institute

 

Bret C. Griess

Mr. Griess’ biographical information is included in the “Executive Officers of the Registrant” section shown directly above.

 

David G. Barnes

Mr. Barnes, 58, was appointed to the Board in February 2014. He is currently Chief Financial Officer of Trimble Inc., a position he assumed on January 4, 2020. He served as Executive Vice President, Global Operations of Stantec Inc., a publicly traded global provider of engineering, consulting, and construction services from 2016 through 2018. From 2009 through 2016, he served as Executive Vice President and CFO of MWH Global Inc., an employee-owned engineering and construction firm. MWH Global Inc. was acquired by Stantec Inc. in 2016. From 2006 to 2008, he was Executive Vice President of Western Union Financial Services. From 2004 to 2006, Mr. Barnes served as CFO of Radio Shack Corporation, and from 1999 to 2004, he was Vice President, Treasurer, and U.S. CFO for Coors Brewing Company. Mr. Barnes holds an M.B.A. degree from the University of Chicago and a B.A. degree from Yale University.

 

Ronald H. Cooper

Mr. Cooper, 63, was appointed to the Board in November 2006. He most recently served as the President and CEO of Clear Channel Outdoor Americas, Inc. (an outdoor advertising company) from 2009 through 2012. Prior to this position, he was a Principal at Tufts Consulting LLC from 2006 through 2009. Previously, he spent nearly 25 years in the cable and telecommunications industry, most recently at Adelphia Communications where he served as President and COO from 2003 to 2006. Prior to Adelphia, Mr. Cooper held a series of executive positions at AT&T Broadband, RELERA Data Centers & Solutions, MediaOne and its predecessor Continental Cablevision, Inc. He has served on various boards of directors and committees with the National Cable Television Association, California Cable & Telecommunications Association, Cable Television Association for Marketing, New England Cable Television Association, and Outdoor Advertising Association of America. Mr. Cooper holds a B.A. degree from Wesleyan University.

 

Marwan H. Fawaz

Mr. Fawaz, 57, was appointed to the Board in March 2016. He is currently an Executive Advisor to Google and Alphabet Inc., after joining Alphabet as the CEO of Nest Labs, Inc. With more than 30 years of experience in the media, cable, telecommunications, and broadband industries, Mr. Fawaz offers a wealth of knowledge and expertise, developed from his time as Executive Vice President and CEO of Google/Motorola Mobility from 2012 to 2013 and Executive Vice President of Strategy and Operations and Chief Technology Officer of Charter Communications from 2006 to 2011. In addition, he served as Senior Vice President and Chief Technology Officer of Adelphia Communications from 2003 to 2006 and held leadership positions for other cable industry companies such as MediaOne, among others. He was the founder and principal of Sarepta Advisors, a strategic advisory and consulting group supporting the technology, media, and telecommunications industries. He holds an M.S. degree in Electrical and Communication Engineering and a B.S. degree in Electrical Engineering, both from California State University at Long Beach.

17

 

Rajan Naik

Dr. Naik, 48, was appointed to the Board in August 2018. He currently serves as Chief Strategy and Innovation Officer for Motorola Solutions, Inc., where he is responsible for the corporate strategy organization, chief technology office, venture capital portfolio, and competitive and market intelligence. Motorola Solutions creates mission-critical communication solutions, including devices, networks, software, services, and video. Prior to joining Motorola Solutions, Dr. Naik held the role of Senior Vice President, Chief Strategy Officer at Advanced Micro Devices (AMD), a provider of high-performance computing, graphics and visualization technologies. From 2000 to 2012, Dr. Naik was a Partner at McKinsey & Company in the technology/media/telecom practice. He holds a BSc. degree in Engineering from Cornell University and a Ph.D. degree in Engineering from the Massachusetts Institute of Technology.

 

Janice I. Obuchowski

Ms. Obuchowski, 68, was appointed to the Board in November 1997. She is the founder and President of Freedom Technologies, Inc. (a firm providing public policy, strategic, and engineering advice to companies in the communications sector, government agencies, and international clients), a position she has held since 1992. In 2003, Ms. Obuchowski was appointed by President George W. Bush to serve as Ambassador and Head of the U.S. Delegation to the World Radiocommunication Conference. She has served as Assistant Secretary for Communications and Information at the Department of Commerce, Administrator for the National Telecommunications and Information Administration (“NTIA”), and as the head of international government relations at NYNEX Corporation. She also has served on several non-profit and other publicly traded company boards. She holds a J.D. degree from Georgetown University and a B.A. degree from Wellesley College, and also attended the University of Paris.

 

Frank V. Sica

Mr. Sica, 69, has served as a director of the Company since its formation in 1994. He has been a Partner of Tailwind Capital (a private equity firm) since 2006. He currently serves as a director on the boards of JetBlue Airways, Kohl’s Corporation, and Safe Bulkers, Inc. Mr. Sica holds an M.B.A. degree from the Tuck School of Business at Dartmouth College and a B.A. degree from Wesleyan University.

 

Donald V. Smith

Mr. Smith, 77, was elected to the Board in January 2002. He is presently retired. Previously, he served as Senior Managing Director of Houlihan Lokey Howard & Zukin, Inc., an international investment banking firm with whom he had been associated from 1988 through 2009 and where he served on the board of directors. From 1978 to 1988, he served as a Principal with Morgan Stanley & Co. Inc., where he headed the company’s valuation and reorganization services. He also serves on the board of directors of several non-profit organizations. Mr. Smith holds an M.B.A. degree from the Wharton Graduate School of the University of Pennsylvania and a B.S. degree from the United States Naval Academy.

 

Haiyan Song

Ms. Song, 54, was appointed to the Board in January 2020. She has served as Sr. Vice President and General Manager of Security Markets for Splunk, Inc. since 2014. Prior to that, she spent four years from 2010-2014 with Hewlett Packard Enterprise Co., in engineering and general manager roles within HP’s ArcSight Business Unit. She joined Hewlett Packard following the company’s acquisition of ArcSight, Inc. in 2010. Ms. Song was Vice President of Engineering & Product with ArcSight from 2005-2010. Ms. Song holds both M.S. and B.S. degrees in Computer Science from Florida Atlantic University. She also studied at Tsinghua University in China and completed the Stanford University Graduate School of Business Executive Program in General Management in 2012.

 

James A. Unruh

Mr. Unruh, 79, was appointed to the Board in June 2005. He became a founding Principal of Alerion Capital Group, LLC (a private equity investment company) in 1998 and currently holds such position. Mr. Unruh was an executive with Unisys Corporation (a global information technology company) from 1987 to 1997, including serving as its Chairman and CEO from 1990 to 1997. From 1982 to 1986, Mr. Unruh held various executive positions, including Senior Vice President–Finance and CFO with Burroughs Corporation, a predecessor of Unisys Corporation. Prior to 1982, Mr. Unruh was CFO with Memorex Corporation and also held various executive positions with Fairchild Camera and Instrument Corporation, including CFO. Mr. Unruh formerly served as director on the boards for Tenet Healthcare Corporation and Prudential Financial, Inc. during the past five years. He holds an M.B.A. degree from the University of Denver and a B.S. degree from the University of Jamestown.

 

18

 

PART II

 

Item  5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on NASDAQ under the symbol ‘‘CSGS’’.  On January 31, 2020, the number of holders of record of common stock was 126.

Stock Price Performance

The following graph compares the cumulative total stockholder return on our common stock, the Russell 2000 Index, and our Standard Industrial Classification (“SIC”) Code Index: Data Preparation and Processing Services during the indicated five-year period. The graph assumes that $100 was invested on December 31, 2014, in our common stock and in each of the two indexes, and that all dividends, if any, were reinvested.

 

 

 

As of December 31,

 

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

CSG Systems International, Inc.

 

$

100.00

 

 

$

146.72

 

 

$

200.85

 

 

$

185.42

 

 

$

137.31

 

 

$

227.96

 

Russell 2000 Index

 

 

100.00

 

 

 

95.59

 

 

 

115.95

 

 

 

132.94

 

 

 

118.30

 

 

 

148.49

 

Data Preparation and Processing Services

 

 

100.00

 

 

 

110.52

 

 

 

129.67

 

 

 

159.46

 

 

 

174.32

 

 

 

245.10

 

Equity Compensation Plan Information

The following table summarizes certain information about our equity compensation plans as of December 31, 2019:

 

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

 

19

 

Of the total number of securities remaining available for future issuance, 3,438,620 shares can be used for various types of stock-based awards, as specified in the equity compensation plan, with the remaining 222,260 shares to be used for our employee stock purchase plan. See Note 13 to our Financial Statements for additional discussion of our equity compensation plans.

Issuer Repurchases of Equity Securities

The following table presents information with respect to purchases of our common stock made during the fourth quarter of 2019 by CSG Systems International, Inc. or any “affiliated purchaser” of CSG Systems International, Inc., as defined in Rule 10b-18(a)(3) under the Exchange Act.

 

Period

 

Total

Number of Shares

Purchased (1) (2)

 

 

Average

Price Paid

Per Share

 

 

Total 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

 

 

 

 

 

 

(1)

The total number of shares purchased that are not part of the Stock Repurchase Program represents shares purchased and cancelled in connection with stock incentive plans.

 

(2)

See Note 12 to our Financial Statements for additional information regarding our share repurchases.

 


20

 

Item 6. Selected Financial Data

The following selected financial data have been derived from our audited financial statements. The selected financial data presented below should be read in conjunction with, and is qualified by reference to, our MD&A and our Financial Statements. The information below is not necessarily indicative of the results of future operations.

 

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

 

(in thousands, except per share amounts)

 

Statements of Income Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues (1)(2)(3)

 

$

996,810

 

 

$

875,059

 

 

$

789,582

 

 

$

760,958

 

 

$

752,520

 

Operating income (1)(2)(3)

 

 

126,109

 

 

 

104,932

 

 

 

105,685

 

 

 

132,629

 

 

 

113,140

 

Net income(1)(2)(3)

 

 

82,770

 

 

 

66,130

 

 

 

61,364

 

 

 

62,882

 

 

 

62,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average diluted shares outstanding

 

 

32,465

 

 

 

32,855

 

 

 

32,865

 

 

 

33,014

 

 

 

33,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased under Stock Repurchase Program (4)

 

 

576

 

 

 

704

 

 

 

500

 

 

 

318

 

 

 

1,838

 

Cost of shares repurchased under Stock Repurchase Program (4)

 

$

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 (at Period End):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and short-term investments (1)(4)(7)

 

$

182,657

 

 

$

162,880

 

 

$

261,360

 

 

$

276,498

 

 

$

240,936

 

Total assets (6)(8)

 

 

1,283,030

 

 

 

1,114,362

 

 

 

904,534

 

 

 

891,879

 

 

 

862,731

 

Total debt (5)(8)

 

 

356,822

 

 

 

359,826

 

 

 

331,736

 

 

 

416,260

 

 

 

279,130

 

Total treasury stock (4)(5)(7)

 

 

867,817

 

 

 

842,360

 

 

 

814,732

 

 

 

826,002

 

 

 

814,437

 

Total stockholders' equity (2)(4)(7)

 

 

396,662

 

 

 

361,024

 

 

 

342,746

 

 

 

251,360

 

 

 

345,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

During 2018, we acquired Business Ink and Forte Payment Systems, Inc., and as a result, ten and three months of their operations, respectively, are included in our 2018 results (approximately $74 million of revenue impact), and a full twelve months of their operations are included in our 2019 results (approximately $165 million impact).  The overall cost of these acquisitions was approximately $155 million and was funded with existing cash.

See Note 7 to our Financial Statements for additional discussion of these acquisitions.

(2)

In 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), a single comprehensive model which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  Under the new guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.  

We adopted the new guidance using the cumulative effect approach, and as a result, recorded a cumulative adjustment increasing beginning retained earnings (net of tax) by approximately $7 million.  

See Note 2 to our Financial Statements for further discussion regarding the adoption of this new standard.

(3)

In September 2015, we sold our cyber-security business, marketed under the Invotas brand, to certain former management personnel, resulting in a gain on the sale of $3.7 million.  In February 2016, this business was acquired by a third-party.  Based on the terms of the agreement, we received additional consideration upon a liquidation event, as defined in the agreement, which resulted in an additional gain on the sale of $6.6 million. The impact of Invotas to our business prior to the divestiture date was not material.

(4)

In March 2015, we entered into an accelerated share repurchase (“ASR”) Agreement with a counterparty to repurchase $50 million of our common stock.  Final share settlement occurred in December 2015, with total shares purchased under the ASR Agreement of 1.6 million.


21

 

(5)

In March 2018, we refinanced our Credit Agreement.  As a result, under the refinanced Credit Agreement, we: (i) extended the term of the agreement to March 2023; (ii) obtained a reduction in the interest rate and other fees; and (iii) borrowed $150 million, resulting in a net increase of available cash of $30 million, after paying off the outstanding $120 million balance from the term loan under the previous Credit Agreement.

In March 2016, we completed an offering of $230 million of 4.25% senior convertible notes due March 15, 2036.  The net proceeds of approximately $223 million were used to settle the outstanding 2010 Convertible Notes, due March 1, 2017.  During 2016, we repurchased approximately $115 million of the 2010 Convertible Notes for approximately $216 million, and recognized a loss on the repurchases of $8.7 million.  In March 2017, we settled our conversion obligation by paying cash of $34.8 million for the remaining par value of the notes and delivered 694,240 shares of our common shares from treasury stock to settle the $28.8 million value of the conversion obligation in excess of par value.    

In February 2015, we refinanced our Credit Agreement.  As a result, under the refinanced Credit Agreement, we: (i) extended the term of the agreement to February 2020; (ii) increased the amount of the revolving credit facility from $100 million to $200 million; and (iii) borrowed $150 million, resulting in a net increase of available cash of $30 million, after paying off the outstanding $120 million balance from the term loan under the previous Credit Agreement.

See Note 5 to our Financial Statements for additional discussion of our debt.

(6)

In 2019, we adopted ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  

We adopted this ASU utilizing the effective date method of transition thus, prior period information in our Financial Statements was not adjusted.  In conjunction with the adoption of this ASU we recorded additional assets and liabilities of approximately $80 million related to the right-of-use assets and lease liabilities.

See Notes 2 and 6 to our Financial Statements for further discussion regarding the adoption of this new standard.

(7)

In December 2019, Comcast exercised 0.4 million vested stock warrants, which we net cash settled under the provisions of the warrant agreement.  The fair value of the stock warrants were $24.6 million, resulting in a net cash settlement of $12.9 million.  In January 2017, Comcast exercised 1.4 million vested stock warrants, which we net share settled under the provisions of the warrant agreement by delivering 649,221 of our common shares from treasury stock, which had a fair value of $31.5 million.  The carrying value of the shares of treasury stock delivered was $15.4 million.  See Note 12 to our Financial Statements for additional discussion of the stock warrants.

(8)

In 2016, we adopted ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) and ASU 2015-17, Income Taxes (Topic 740).  ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a reduction from the carrying amount of that debt liability, consistent with debt discounts.  ASU 2015-17 requires that all deferred tax liabilities and assets be classified as noncurrent.  We adopted both ASU’s on January 1, 2016, which resulted in a reclassification of our Balance Sheets for the periods presented.

 

 


22

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains a number of forward-looking statements relative to our future plans and our expectations concerning our business and the industries we serve. These forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. Some of the risks that are foreseen by management are outlined above within Item 1A., “Risk Factors”. Item 1A. constitutes an integral part of this report, and readers are strongly encouraged to review this section closely in conjunction with MD&A.

Acquisition Activity

During 2018, we completed the following two acquisitions:  (i) Business Ink, Co. (“Business Ink”) on February 28, 2018; and (ii) Forte Payment Systems, Inc. (“Forte”) on October 1, 2018.  These two business acquisitions have impacted the year-over-year results of operations, and as a result, amounts may not be comparable between years due to the timing of the transactions.  The comparable differences have been described below where relevant or significant.

 

Additionally, on January 2, 2020, we acquired certain assets of Tekzenit, Inc. (“Tekzenit”) for an initial purchase price of approximately $10 million.  The purchase agreement includes provisions for additional purchase price payments in the form of earn-out and qualified sales payments for up to $10 million over a three-year measurement period upon meeting certain financial and sales criteria.  At this time, we expect that Tekzenit will contribute approximately $10 million to our 2020 revenues and be neutral to slightly accretive to our results from operations.  The expected impact of the Tekzenit acquisition includes estimates for costs associated with our planned integration efforts and estimates for the amortization of acquired intangible assets.  Because of the inherent uncertainties in making such estimates, the actual impact of Tekzenit on our 2020 financial performance may vary from our current expectations as we work through our integration efforts and complete the Tekzenit purchase accounting.

 

These acquisitions are discussed in greater detail in Note 7 to our Financial Statements.

Impact of New Lease Accounting Pronouncement

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”), which requires lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  We adopted ASC 842 in January of 2019, utilizing the effective date method of transition.  While the adoption of this standard resulted in a material gross-up of our Balance Sheet assets and liabilities, it did not have a material impact on our Income Statement or Statement of Cash Flows.

 

Refer to Notes 2 and 6 to our Financial Statements for further detail regarding the adoption of ASC 842.

23

 

Management Overview

Results of Operations. A summary of our results of operations for 2019 and 2018, and other key performance metrics are as follows (in thousands, except percentages and per share amounts):

 

 

 

 

Year Ended December 31,

 

 

 

 

2019

 

 

2018

 

Revenues

 

 

$

996,810

 

 

$

875,059

 

Transaction fees (1)

 

 

 

69,114

 

 

 

15,602

 

Operating Results:

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

126,109

 

 

 

104,932

 

Operating income margin

 

 

 

12.7

%

 

 

12.0

%

Diluted EPS

 

 

$

2.55

 

 

$

2.01

 

Supplemental Data:

 

 

 

 

 

 

 

 

 

Restructuring and reorganization charges (2)

 

 

$

4,834

 

 

$

8,661

 

Acquisition-related costs:

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

 

12,603

 

 

 

9,699

 

Earn-out compensation

 

 

 

1,260

 

 

 

1,260

 

Transaction-related costs

 

 

 

-

 

 

 

3,653

 

Stock-based compensation (2)

 

 

 

20,896

 

 

 

19,650

 

Amortization of OID

 

 

 

2,819

 

 

 

2,664

 

Loss on extinguishment of debt

 

 

 

-

 

 

 

810

 

 

(1)

Transaction fees are primarily comprised of interchange and other payment-related fees that we pay, in conjunction with the delivery of service to clients under our payment services contracts, to third-party payment processors and financial institutions.  Because we control the integrated service provided under our payment services client contracts, these transaction fees are presented gross, and not netted against revenues.

 

(2)

Stock-based compensation included in the table above excludes amounts that have been recorded in restructuring and reorganization charges.

Revenues. Our revenues for 2019 were $996.8 million, a 14% increase when compared to $875.1 million for 2018, with the increase mainly attributed to the full year impact of the Business Ink and Forte acquisitions, discussed above, which generated an additional $91 million of combined revenues in 2019 over that in 2018, and the remaining increase due primarily to our cloud solutions and managed services arrangements.

Operating Results.  Operating income for 2019 was $126.1 million, or a 12.7% operating income margin percentage, compared to $104.9 million, or a 12.0% operating income margin percentage for 2018, with the increase in operating income primarily a result of the higher revenues generated in 2019.

Diluted Earnings Per Share (“EPS”).  Diluted EPS for 2019 was $2.55 compared to $2.01 for 2018, reflective of the higher operating income for 2019.  Additionally, 2019 diluted EPS was positively impacted by a lower effective income tax rate resulting primarily from an approximately $4 million net income tax benefit related to Comcast’s exercise of 0.4 million vested common stock warrants.

Balance Sheet and Cash Flows.  As of December 31, 2019, we had cash, cash equivalents, and short-term investments of $182.7 million, as compared to $162.9 million as of December 31, 2018.  Cash flows from operating activities for 2019 were $151.1 million, compared to $143.3 million for 2018.  See the Liquidity section below for further discussion of our cash flows.

24

 

Significant Client Relationships

Comcast.  Comcast continues to be our largest client.  For 2019 and 2018, revenues from Comcast were $229 million and $221 million, respectively, representing approximately 23% and 25% of our total revenues.  On December 16, 2019, we entered into a new CSG Master Subscriber Management System Agreement with Comcast (the “Agreement”) which supersedes all previous agreements with Comcast.  The key terms of the Agreement are as follows:

 

 

•

The Agreement is effective January 1, 2020, and extends our contractual relationship with Comcast through December 31, 2024 for cloud and related solutions, and through December 31, 2025 for print and mail services for residential customer accounts.  In addition, the Agreement provides Comcast with the option to extend the cloud and related services for one additional year by exercising the renewal option no later than June 30, 2023.  

 

•

We maintain the exclusive right to provide print and mail services to all Comcast residential customer accounts through December 31, 2025.

 

•

The fees to be generated under the Agreement will be based primarily on monthly charges for cloud and related services per Comcast residential customer account, and various other ancillary services based on actual usage.  Certain of the per-unit fees include volume-based pricing tiers, and may be subject to annual price escalators.  

 

•

The Agreement contains certain financial commitments associated with the number of Comcast residential customer accounts that are to be processed on our systems, with such commitments decreasing over the life of the Agreement.  However, if Comcast chooses to process fewer customer accounts on our systems than the committed amounts, the monthly fees to be paid by Comcast will be based on the higher number of committed customer accounts for the applicable billing period.

 

•

The Agreement includes potential financial incentives related to Comcast’s efficient use of our systems.

 

•

The Agreement contains certain rights and obligations of both parties, including the following key items:  (i) the termination of the Agreement under certain conditions; (ii) various service level commitments; and (iii) remedies and limitation on liabilities associated with specified breaches of contractual obligations.

 

When compared to the previous agreement, we provided overall pricing adjustments of approximately 10% to Comcast, which in effect, will reduce the current fees we will receive from Comcast.  The anticipated revenue impact in both the near and long terms may vary depending on the type of service consumed by Comcast.  The impact from the Agreement is only an estimate and actual results may vary depending upon a variety of factors.  We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

A copy of the Agreement, with confidential information redacted, is filed as exhibit 10.27 to this Form 10-K.

 

Charter. Charter is our second largest client.  For 2019 and 2018, revenues from Charter were $195 million and $179 million, respectively, representing approximately 20% of our total revenues for both years.  Our agreement with Charter runs through December 31, 2021, with an option to extend the agreement for an additional one-year term.

 

A copy of the Charter agreements and related amendments, with confidential information redacted, are included in the exhibits to our periodic filings with the SEC.

Stock-Based Compensation Expense

Stock-based compensation expense is included in the following (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

See Notes 2 and 13 to our Financial Statements for additional discussion of our stock-based compensation expense.

25

 

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets is included in the following (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

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 increases in amortization of acquired intangible assets between years are due to the amortization of the intangible assets acquired with the Business Ink and Forte acquisitions in 2018, discussed above, thus 2019 having the full year impact.  See Note 4 to our Financial Statements for additional discussion of our acquired intangible assets and related amortization.  

Critical Accounting Policies

The preparation of our Financial Statements in conformity with accounting principles generally accepted in the U.S. requires us to select appropriate accounting policies, and to make judgments and estimates affecting the application of those accounting policies.  In applying our accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in our Financial Statements.

We have identified the most critical accounting policies that affect our financial position and the results of our operations.  These critical accounting policies were determined by considering our accounting policies that involve the most complex or subjective decisions or assessments.  The most critical accounting policies identified relate to:  (i) revenue recognition; (ii) impairment assessments of long-lived assets; (iii) income taxes; and (iv) loss contingencies. These critical accounting policies, as well as our other significant accounting policies, are disclosed in the notes to our Financial Statements.

Revenue Recognition.  In accordance with ASC 606, revenue is recognized upon conclusion that a contract with a client exists. Such conclusion is made by us when the contract is legally enforceable and certain criteria, including collectability, are met.  In making our determination of collectability, we consider a number of factors depending upon the specific aspects of an arrangement, which may include, but is not limited to, the following items: (i) an assessment of the client’s specific credit worthiness, evidenced by its current financial position and/or recent operating results, credit ratings, and/or a bankruptcy filing status (as applicable); (ii) the client’s current accounts receivable status and/or its historical payment patterns with us (as applicable); (iii) the economic condition of the industry in which the client conducts the majority of its business; and/or (iv) the economic conditions and/or political stability of the country or region in which the client is domiciled and/or conducts the majority of its business.  The evaluation of these factors, and the ultimate determination of collectability, requires significant judgments to be made by us.  The judgments made in this area could have a significant effect to the amount and timing of revenue recognized in any period.

Our contracts with clients include cloud-based revenue management solution arrangements, managed services arrangements, cloud-based payment processing transaction services, software license and service arrangements, professional services arrangements, and bundled service arrangements.  The revenue recognition policies that involve the most complex and subjective decisions or assessments that may have a material impact on our operations relate to the accounting for cloud-based revenue management solution arrangements, software license and service arrangements, and bundled service arrangements.

Our cloud-based revenue management solution arrangements are complex agreements that typically include multiple performance obligations.  Key factors considered in accounting for cloud-based revenue management solution arrangements include the following criteria:  (i) identification of performance obligations within the contract; (ii) determination of the transaction price given the variable nature of the consideration and significance of the consideration; (iii) determination of stand-alone selling price for each performance obligation and the allocation of value between the performance obligations; and (iv) calculation of revenue recognized in each period. The evaluation of these factors and ultimate revenue recognition decision requires significant judgements to be made by us.  Depending on the significance of variable consideration, number of solutions/services, complex pricing structures and long-term nature of these types of contracts, the judgements and estimates made in this area could have a significant effect on the amount and timing of revenue recognized in any period.  In addition, certain solutions and arrangements require us to make an assessment of whether we are a principal to the transaction (gross revenue) or an agent to the transaction (net revenue). Such assessments can have a significant effect on the amount of revenue recognized.

26

 

Our software license and services arrangements and bundled service arrangements include multiple performance obligations and can be complex and require considerable judgement.  Key factors considered in accounting for our software license and related service arrangements include the following criteria:  (i) identification of performance obligations within the contract; (ii) assessment of whether services included in the arrangement represent significant production, modification or customization of the software (as applicable), such that the delivery of the software license and related services required to implement the software represent one combined performance obligation; (iii) determination of the transaction price for the contract as these types of arrangements may include both fixed and variable consideration; (iv) determination of stand-alone selling price for each performance obligation; allocation of value between performance obligations; and (v) estimates to measure progress for delivery.  The evaluation of these factors and ultimate revenue recognition decision requires significant judgements to be made by us.  We generally determine stand-alone selling prices using pricing calculations (which include regional market factors) for our software license fees and maintenance, and cost-plus margins for services.  The pricing calculations can be complex and require estimates based on volumes and regional market factors. Additionally, our use of an hours-based method of accounting for software license and other professional services performance obligations that are satisfied over time requires estimates of total project revenues and costs, along with the expected hours necessary to complete a project.  Changes in estimates as a result of additional information or experience on a project as work progresses are inherent characteristics of this method of revenue recognition as we are exposed to various business risks in completing these types of performance obligations.  The estimation process to support our hours-based recognition method is more difficult for projects of greater length and/or complexity. The judgments and estimates made in this area could:  (i) have a significant effect on revenues recognized in any period by changing the amount and/or the timing of the revenue recognized; and/or (ii) impact the expected profitability of a project, including whether an overall loss on an arrangement has occurred.

Our contracts are subject to modification via amendment, change requests, and/or statement of works.  Such modifications can occur frequently.  The accounting for contract modifications under ASC 606 can be complex and requires significant judgements to be made by us as to whether the contract modification is treated as either a separate contract or part of the existing contract.  The judgements made in this area could have a significant effect on the revenues recognized in any period by changing the amount and/or timing of the revenue recognized.

Our contracts typically include service level agreements or other incentives that may result in refunds or credits to our clients.  Under ASC 606, failure to meet service level standards under the terms of the contract represent adjustments to the overall consideration (reductions in revenue) and may need to be estimated at the outset of the arrangement as part of the overall variable consideration.  Such estimates require significant judgement by us and may impact the amount and/or timing of the revenue recognized.

Impairment Assessments of Long-Lived Assets.  Long-lived assets, which for us relates primarily to property and equipment, software, acquired client contracts, and client contract costs, are required to be evaluated for possible impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.  A long-lived asset (or group of long-lived assets) is impaired if estimated future undiscounted cash flows associated with that asset, without consideration of interest, are insufficient to recover the carrying amount of the long-lived asset.  Once deemed impaired, even if by $1, the long-lived asset is written down to its fair value which could be considerably less than the carrying amount or future undiscounted cash flows.  The determination of estimated future cash flows and, if required, the determination of the fair value of a long-lived asset, are by their nature, highly subjective judgments.  Changes to one or more of the assumptions utilized in such an analysis could materially affect our impairment conclusions for long-lived assets.

Income Taxes. We are required to estimate our income tax liability in each jurisdiction in which we operate, which includes the U.S. (including both Federal and state income taxes) and numerous foreign countries.

Various judgments are required in evaluating our income tax positions and determining our provisions for income taxes.  We regularly assess the likelihood of the future realization of our deferred income tax assets.  To the extent we believe that it is more likely than not that a deferred income tax asset will not be realized, a valuation allowance is established.  During the ordinary course of our business, there are certain transactions and calculations for which the ultimate income tax determination may be uncertain.  In addition, we may be subject to examination of our income tax returns by various tax authorities which could result in adverse outcomes.  For these reasons, we establish a liability associated with unrecognized tax benefits based on estimates of whether additional taxes and interest may be due.  We adjust this liability based upon changing facts and circumstances, such as the closing of a tax audit, the closing of a tax year upon the expiration of a statute of limitations, or the refinement of an estimate. Should any of the factors considered in determining the adequacy of this liability change significantly, an adjustment to the liability may be necessary. Because of the potential significance of these issues, such an adjustment could be material.

27

 

One of the more complex items within our income tax expense is the determination of our annual research and experimentation income tax credit (“R&D credit”).  We have incurred approximately $100 - $130 million annually in R&D expense over the last three years.  The calculation of the R&D tax credit involves the identification of qualifying projects, and then an estimation of the qualifying costs for such projects.  Because of the size, nature, and the number of projects worked on in any given year, the calculation can become complex and certain judgments are necessary in determining the amount of the R&D credits claimed.

Loss Contingencies. In the ordinary course of business, we are subject to claims (and potential claims) related to various items including but not limited to the following:  (i) legal and regulatory matters; (ii) vendor contracts; (iii) solution and service delivery matters; and (iv) labor matters.  Accounting and disclosure requirements for loss contingencies requires us to assess the likelihood of any adverse judgments in or outcomes to these matters, as well as the potential ranges of probable losses. A determination of the amount of reserves for such contingencies, if any, is based on an analysis of the issues, often with the assistance of legal counsel.  The evaluation of such issues, and our ultimate accounting and disclosure decisions, are by their nature, subject to various estimates and highly subjective judgments. Should any of the factors considered in determining the adequacy of any required reserves change significantly, an adjustment to the reserves may be necessary.  Due to the potential significance of these issues, such an adjustment could be material.

Detailed Discussion of Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity for the year ended December 31, 2019 compared to the year ended December 31, 2018.  For a discussion of the year ended December 31, 2018 compared to the year ended December 31, 2017, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 22, 2019.

Total Revenues. Total revenues for 2019 were $996.8 million, a 14% increase when compared to $875.1 million for 2018.  This increase in total revenues can be mainly attributed to the full year impact the Business Ink and Forte acquisitions, which generated an additional $91 million of combined revenues in 2019 over that in 2018 due to the timing of the transactions, and the remaining increase due primarily to our cloud solutions and managed services arrangements.

The components of total revenues, discussed in more detail below, are as follows (in thousands):

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

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. Cloud and related solutions revenues for 2019 increased 17% to $896.2 million, from $766.4 million for 2018.  The year-over-year increase can be primarily attributed to the full year impact the Business Ink and Forte acquisitions, which generated an additional $91 million of combined revenues in 2019 over that in 2018, and the remaining increase due to our cloud solutions and managed services arrangements.

Amortization of the investments in client contracts intangible asset (reflected as a reduction of cloud and related solutions revenues) for 2019, 2018, and 2017 was $6.0 million, $11.1 million, and $7.4 million, respectively.

Software and Services Revenues. Software and services revenues for 2019 decreased 10% to $52.4 million, from $58.1 million for 2018, with the decrease primarily attributed to the continued shift in our focus towards longer-term managed services arrangements, which are included in our cloud and related solutions revenues.  

Maintenance Revenues.  Maintenance revenues for 2019 decreased 5% to $48.3 million, from $50.6 million for 2018, with the decrease reflective of our decreasing software revenues and also impacted by the timing of maintenance renewals and related revenue recognition.

We continue to transition our focus towards more predictable recurring revenue models with our longer-term managed services arrangements and delivery of our cloud-based solutions and away from software and services revenues with related maintenance agreements.

28

 

Total Operating Expenses.  Our operating expenses for 2019 increased 13% to $870.7 million, from $770.1 million for 2018, with over 85% of this increase mainly attributed to the full year impact of the Business Ink and Forte businesses operating expenses being included in our results, to include an additional $53.5 million of transaction fees and $3.8 million of acquisition amortization, year-over-year.    

Cost of Revenues (Exclusive of Depreciation).  The components of total expenses are discussed in more detail below.

The components of cost of revenues, discussed in more detail below, are as follows (in thousands):

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Cost of Cloud and Related Solutions (Exclusive of Depreciation).  The cost of cloud and related solutions revenues consists principally of the following: (i) computing capacity and network communications costs; (ii) statement production costs (e.g., labor, paper, envelopes, equipment, equipment maintenance, etc.); (iii) transaction fees-interchange and other payment-related fees to third-party payment processors and financial institutions;  (iv) client support organizations (e.g., our client support call center, account management, etc.); (v) various product delivery and support organizations (e.g., managed services delivery, product management, product maintenance, etc.); (vi) facilities and infrastructure costs related to the statement production and support organizations; and (vii) amortization of acquired intangibles. The costs related to new solution development (including significant enhancements to existing solutions and services) are included in R&D expense.

The cost of cloud and related solutions for 2019 increased 20% to $472.4 million, from $392.8 million for 2018.  This increase can be mainly attributed to the cloud and related solutions expense of the acquired Business Ink and Forte businesses included in our results, to include transaction fees and acquisition amortization, and is also reflective of the increase in non-acquisition-related cloud and related solutions revenues between years.  Total cloud and related solutions cost of revenues as a percentage of our cloud and related solutions revenues for 2019, 2018, and 2017, were 52.7%, 51.3%, and 48.4%, respectively (with 2019 and 2018 reflective of transaction fees of $69.1 million and $15.6 million, respectively).

Cost of Software and Services (Exclusive of Depreciation).  The cost of software and services revenues consists principally of the following: (i) professional services organization; (ii) various product support organizations (e.g., delivery, etc.); (iii) facilities and infrastructure costs related to these organizations; and (iv) third-party software costs and/or royalties related to certain software products.  The costs related to new solution development (including significant enhancements to existing solutions and services) are included in R&D expense.

The cost of software and services for 2019 was $31.7 million, a 9% decrease when compared to $34.9 million for 2018.  This decrease is reflective of the lower software and services revenues and as a result, personnel and the related costs previously allocated to professional services projects have been reassigned to other areas of the business.  Total cost of software and services as a percentage of our software and services revenues for 2019, 2018, and 2017 were 60.6%, 60.0%, and 62.0%, respectively.

Variability in quarterly revenues and operating results are inherent characteristics of companies that sell software licenses and perform professional services.  Our quarterly revenues for software licenses and professional services may fluctuate, depending on various factors, including the timing of executed contracts and revenue recognition, and the delivery of contracted solutions.  However, the costs associated with software and professional services revenues are not subject to the same degree of variability (e.g., these costs are generally fixed in nature within a relatively short period of time), and thus, fluctuations in our cost of software and services as a percentage of our software and services revenues will likely occur between periods.  

Cost of Maintenance (Exclusive of Depreciation).  The cost of maintenance consists principally of the following: (i) client support organizations (e.g., our client support call center, account management, etc.); (ii) various product support organizations (e.g., product maintenance, product management, etc.); (iii) facilities and infrastructure costs related to these organizations; and (iv) amortization of acquired intangibles.

The cost of maintenance for 2019 decreased 5% to $21.0 million, from $22.1 million for 2018, with the decrease primarily due to lower amortization expense for certain acquired intangible assets.  Total cost of maintenance as a percentage of our maintenance revenues for 2019, 2018, and 2017 were 43.5%, 43.8%, and 53.9%, respectively.

29

 

R&D Expense (Exclusive of Depreciation).  R&D expense for 2019 was $128.0 million, a 3% increase when compared to $124.0 million for 2018, with the increase mainly attributed to the R&D costs associated with the acquired Forte business.  

Our R&D efforts are focused on the continued evolution of our solutions that enable global service providers worldwide to provide a more personalized customer experience while introducing new digital products and services.  This includes the continued investment in our cloud-based solutions.

As a percentage of total revenues, R&D expense for 2019, 2018, and 2017 was 12.8%, 14.2%, and 14.3%, respectively (with the percentage decrease in 2019 reflective of a full year of transaction fees of $69.1 million).  We anticipate the level of R&D investment in the near-term to be relatively consistent with 2019.

Selling, General and Administrative Expense (“SG&A”) (Exclusive of Depreciation).  SG&A expense for 2019 increased 13% to $191.3 million, from $169.3 million for 2018. The increase in SG&A expense between 2019 and 2018 is primarily due to the SG&A costs related to the acquired Forte business, and an increase in employee-related costs.  As a percentage of total revenues, SG&A expense for 2019, 2018, and 2017 was 19.2%, 19.3% and 19.5%, respectively.

Depreciation Expense.  Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the cost of revenues or the other components of operating expenses.  Depreciation expense for 2019 was $21.4 million, a 17% increase from $18.3 million for 2018.  The increase can be primarily attributed to depreciation expense from the acquired Business Ink and Forte assets and the full year impact of our increased level of capital expenditures during 2018.

Restructuring and Reorganization Charges. In 2019 and 2018, we implemented various cost reduction and efficiency initiatives that resulted in restructuring and reorganization charges of $4.8 million and $8.7 million, respectively.  These initiatives included: (i) reducing and reorganizing our workforce to further align it around our long-term growth initiatives; (ii) the abandonment of space at some of our facility locations; and (iii) the reversal of a liability related to a previous disposition of a business.

See Note 8 to our Financial Statements for additional information regarding these initiatives.

Operating Income.  Operating income and operating income margin for 2019 was $126.1 million, or 12.7% of total revenues, compared to $104.9 million, or 12.0% of total revenues for 2018.  The increase in operating income can be primarily attributed to the higher revenues generated in 2019.

Interest Expense and Amortization of Original Issue Discount (“OID”).  Our interest expense relates primarily to our 2016 Convertible Notes and our Credit Agreement. See Note 5 to our Financial Statements for additional discussion of our long-term debt, to include the non-cash interest expense related to the amortization of the convertible debt OID.

Loss on Extinguishment of Debt.  In March 2018, we refinanced our 2015 Credit Agreement (see Note 5 to our Financial Statements).  As a result, we incurred a loss of $0.8 million related to the write-off of unamortized debt issuance costs.

Income Tax Provision.  Our effective income tax rates for 2019, 2018, and 2017 were as follows:

 

2019 (1)(2)

 

 

2018 (2)

 

 

2017

 

 

22

%

 

 

24

%

 

 

30

%

 

(1)

As a result of Comcast’s exercise of their remaining 0.4 million of vested stock warrants in December 2019 (see Note 12 to our Financial Statements), we received an additional income tax benefit of approximately $4 million due to the stock warrants appreciating in value since the grant date.

 

(2)

Our 2019 and 2018 effective income tax rates reflect the impact of the U.S. Tax Cuts and Jobs Act (see Note 9 to our Financial Statements), which reduced the U.S. base corporate rate of income taxation from 35% to 21% applicable to taxable years beginning after December 31, 2017.  

30

 

Liquidity

Cash and Liquidity.  As of December 31, 2019, our principal sources of liquidity included cash, cash equivalents, and short-term investments of $182.7 million, compared to $162.9 million as of December 31, 2018. We generally invest our excess cash balances in low-risk, short-term investments to limit our exposure to market and credit risks.

During the first quarter of 2018, we refinanced our 2015 Credit Agreement which extended the term of the loan to March 2023 as well as obtained a reduction in the interest rate and other fees.  The 2018 Credit Agreement increased our liquidity and capital resources position by approximately $30 million.

As part of our 2018 Credit Agreement, we have a $200 million senior secured revolving loan facility with a syndicate of financial institutions that expires in March 2023.  As of December 31, 2019, there were no borrowings outstanding on the 2018 Revolver.  The 2018 Credit Agreement contains customary affirmative covenants and financial covenants. As of December 31, 2019, and the date of this filing, we believe that we are in compliance with the provisions of the 2018 Credit Agreement.

Our cash, cash equivalents, and short-term investment balances as of the end of the indicated periods were located in the following geographical regions (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Americas (principally the U.S.)

 

$

125,309

 

 

$

110,385

 

Europe, Middle East and Africa

 

 

50,477

 

 

 

45,884

 

Asia Pacific

 

 

6,871

 

 

 

6,611

 

Total cash, cash equivalents and short-term investments

 

$

182,657

 

 

$

162,880

 

We generally have ready access to substantially all of our cash, cash equivalents, and short-term investment balances, but may face limitations on moving cash out of certain foreign jurisdictions due to currency controls and potential negative economic consequences. As of December 31, 2019, we had $2.7 million of cash restricted as to use to collateralize outstanding letters of credit.

Cash Flows From Operating Activities. We calculate our cash flows from operating activities beginning with net income, adding back the impact of non-cash items or non-operating activity (e.g., depreciation, amortization, amortization of OID, impairments, gain/loss from debt extinguishments, deferred income taxes, stock-based compensation, etc.), and then factoring in the impact of changes in operating assets and liabilities.

Our primary source of cash is from our operating activities. Our current business model consists of a significant amount of recurring revenue sources related to our long-term cloud-based and managed services arrangements (mostly billed monthly), payment process transaction services (mostly billed monthly), and software maintenance agreements (billed monthly, quarterly, or annually). This recurring revenue base provides us with a reliable and predictable source of cash. In addition, software license fees and professional services revenues are sources of cash, but the payment streams for these items are less predictable.

The primary use of our cash is to fund our operating activities. Over half of our total operating costs relate to labor costs (both employees and contracted labor) for the following: (i) compensation; (ii) related fringe benefits; and (iii) reimbursements for travel and entertainment expenses. The other primary cash requirements for our operating expenses consist of: (i) computing capacity and related services and communication lines for our outsourced cloud-based business; (ii) paper, envelopes, and related supplies for our statement processing solutions; (iii) transaction fees paid in conjunction with the delivery of services under our payment services contracts; (iv) hardware and software; and (v) rent and related facility costs. These items are purchased under a variety of both short-term and long-term contractual commitments.  A summary of our material contractual obligations is provided below.

31

 

Our 2019 and 2018 net cash flows from operating activities, broken out between operations and changes in operating assets and liabilities, for the indicated quarterly periods are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Net Cash

 

 

 

 

 

 

 

Changes in

 

 

Provided by

 

 

 

 

 

 

 

Operating

 

 

(Used In) Operating

 

 

 

 

 

 

 

Assets and

 

 

Activities –

 

 

 

Operations

 

 

Liabilities

 

 

Totals

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

2019:

 

 

 

 

 

 

 

 

 

 

 

 

March 31 (1)(2)

 

$

42,003

 

 

$

(29,177

)

 

$

12,826

 

June 30 (2)

 

 

46,072

 

 

 

(30,469

)

 

 

15,603

 

September 30

 

 

44,210

 

 

 

34,888

 

 

 

79,098

 

December 31

 

 

40,342

 

 

 

3,207

 

 

 

43,549

 

Total

 

$

172,627

 

 

$

(21,551

)

 

$

151,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018:

 

 

 

 

 

 

 

 

 

 

 

 

March 31 (1)

 

$

38,247

 

 

$

(8,392

)

 

$

29,855

 

June 30 (2)

 

 

38,476

 

 

 

(42,117

)

 

 

(3,641

)

September 30

 

 

34,888

 

 

 

12,167

 

 

 

47,055

 

December 31

 

 

46,646

 

 

 

23,426

 

 

 

70,072

 

Total

 

$

158,257

 

 

$

(14,916

)

 

$

143,341

 

 

(1)

Cash flows from operating activities for the first quarter of 2019 and 2018 reflect the negative impacts of the payment of the 2018 and 2017 year-end accrued employee incentive compensation in the first quarter subsequent to the year-end accrual for those items.  

 

(2)

Cash flows from operating activities for the first and second quarters of 2019, and the second quarter of 2018, were negatively impacted by the timing around certain recurring client payments that were received subsequent to quarter-end.

We believe the above table illustrates our ability to generate recurring quarterly cash flows from our operations, and the importance of managing our working capital items.  The quarterly and annual variations in our net cash provided by operating activities are related mostly to the changes in our operating assets and liabilities (related mostly to fluctuations in timing at quarter-end of client payments and changes in accrued expenses), and generally over longer periods of time, do not significantly impact our cash flows from operations.

Significant fluctuations in key operating assets and liabilities between 2019 and 2018 that impacted our cash flows from operating activities are as follows:

Billed Trade Accounts Receivable

Management of our billed accounts receivable is one of the primary factors in maintaining strong quarterly cash flows from operating activities.  Our billed trade accounts receivable balance includes significant billings for several non-revenue items (primarily postage, sales tax, and deferred revenue items). As a result, we evaluate our performance in collecting our accounts receivable through our calculation of days billings outstanding (“DBO”) rather than a typical days sales outstanding (“DSO”) calculation.

32

 

Our gross and net billed trade accounts receivable and related allowance for doubtful accounts receivable (“Allowance”) as of the end of the indicated quarterly periods, and the related DBOs for the quarters then ended, are as follows (in thousands, except DBOs):

 

Quarter Ended

 

Gross

 

 

Allowance

 

 

Net Billed

 

 

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

 

As of December 31, 2019 and 2018, approximately 95% of our billed accounts receivable balance, for both periods, was less than 60 days past due.  

As a result of the Business Ink and Forte acquisitions in 2018, we have seen an increase in our gross and net billed accounts receivable balances.  Additionally, we may experience fluctuations in our accounts receivable balance due to the timing around certain recurring client payments at quarter-end.  However, these recurring monthly payments that cross a reporting period-end do not raise any collectability concerns, as payment is generally received subsequent to quarter-end.  All other changes in our gross and net billed accounts receivable reflect the normal fluctuations in the timing of client payments at quarter-end, as evidenced by our relatively consistent DBO metric over the past several quarters.

As a global provider of software and professional services, a portion of our accounts receivable balance relates to clients outside the U.S.  This diversity in the geographic composition of our client base may adversely impact our DBOs as longer billing cycles (i.e., billing terms and cash collection cycles) are an inherent characteristic of international software and professional services transactions.  For example, our ability to bill (i.e., send an invoice) and collect arrangement fees may be dependent upon, among other things: (i) the completion of various client administrative matters, local country billing protocols and processes (including local cultural differences), and/or non-client administrative matters; (ii) meeting certain contractual invoicing milestones; or (iii) the overall project status in certain situations in which we act as a subcontractor to another vendor on a project.

Other Current and Non-Current Assets and Liabilities

The increase in other current and non-current assets in 2019 is due primarily to additional client contract costs related to client conversion/set-up activities and direct material costs to fulfill our cloud-based solution arrangements.

Cash Flows From Investing Activities.  Our typical investing activities consist of purchases/sales of short-term investments, purchases of property and equipment, and investments in client contracts, which are discussed below.  Additionally, our recent investing activities also include acquisition and investment activities related to: (i) the acquisitions of the Business Ink and Forte businesses in 2018 that resulted in payments in 2019 and 2018 of $13.2 million and $142.0 million, respectively, (see Note 7 of our Financial Statements); and (ii) investments in a payment technology and services company in 2019 and 2018 of $4.0 million and $2.8 million, respectively (see Note 2 of our Financial Statements).  All of these activities are included in our cash flows from investing activities.

Purchases/Sales of Short-term Investments

During 2019 and 2018, we purchased $54.3 million and $75.0 million, respectively, and sold or had mature $52.1 million and $190.8 million, respectively, of short-term investments. We continually evaluate the possible uses of our excess cash balances and will likely purchase and sell additional short-term investments in the future.

Software, Property and Equipment

Our annual capital expenditures for software, property and equipment for 2019 and 2018 were $37.3 million and $57.1 million, respectively.  Our capital expenditures for these periods consisted principally of investments in: (i) computer hardware, software, and related equipment; (ii) statement production equipment; and (iii) facilities and internal infrastructure items.

33

 

Cash Flows From Financing Activities.  Our financing activities typically consist of various debt-related transactions and activities with our common stock, which are discussed below.

Issuance of Common Stock

Proceeds from the issuance of common stock for 2019 and 2018 were $2.2 million and $2.3 million, respectively, and relate primarily to employee stock purchase plan purchases.

Repurchase of Common Stock

During 2019 and 2018, we repurchased approximately 576,000 shares and 704,000 shares of our common stock under the guidelines of our Stock Repurchase Program for $25.5 million and $27.6 million, respectively.

Additionally, outside of our Stock Repurchase Program, during 2019 and 2018, we repurchased from our employees and then canceled approximately 117,000 shares and 159,000 shares, of our common stock for $5.1 million and $7.4 million, respectively, in connection with minimum tax withholding requirements resulting from the vesting of restricted stock under our stock incentive plans.

Through December 31, 2019 and, 2018, we have paid $30.9 million and $34.7 million, respectively, for our total repurchases of common stock, with the differences in the amounts accrued attributed to the timing of the settlement.

Cash Dividends Paid on Common Stock

During 2019 and 2018, the Board approved dividend payments totaling $29.4 million and $28.1 million, respectively, of which $29.1 million and $28.0 million, respectively, had been paid through December 31, 2019 and 2018 (with the differences attributed to unvested incentive shares that are paid upon vesting).

Common Stock Warrants

During the fourth quarter of 2019, Comcast exercised the remaining 0.4 million of their vested common stock warrants, which we net cash settled under the provisions of the warrant agreement for $12.9 million.  See Note 12 to our Financial Statements for further discussion of Comcast’s exercise of their common stock warrants.

Long-term Debt

During the first quarter of 2018, we refinanced our 2015 Credit Agreement and as a result, we repaid the outstanding principal balance of $120.0 million and borrowed $150.0 million under the 2018 Credit Agreement, resulting in a net increase of available cash of $30.0 million.  As part of the refinancing, we paid $1.5 million of deferred financing costs.  

Additionally, during 2019 and 2018, we made principal repayments of $7.5 million and $5.6 million, respectively, on our long-term debt balance.  See Note 5 to our Financial Statements for additional discussion of our long-term debt.

34

 

Contractual Obligations and Other Commercial Commitments and Contingencies

We have various contractual obligations that are recorded as liabilities in our Consolidated Balance Sheets. Other items, such as certain purchase commitments and other executory contracts, are not recognized as liabilities in our Balance Sheets but are required to be disclosed.

The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2019, and the future periods in which such obligations are expected to be settled in cash (in thousands).

 

 

 

 

 

 

 

Less than

 

 

 

 

 

 

 

 

 

 

More than

 

 

 

Total

 

 

1 Year

 

 

Years 2-3

 

 

Years 4-5

 

 

5 Years

 

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

 

 

The contractual obligation amounts reflected for our long-term debt are based upon the following assumptions:

(i)

Our 2016 Convertible Notes will remain outstanding through their maturity date of March 15, 2036 (although the 2016 Convertible Notes can be converted during the period from, and including, December 15, 2021 to the close of business on the business day immediately preceding March 15, 2022 and holders may require us to repurchase the 2016 Convertible Notes for cash on each of March 15, 2022, March 14, 2026, and March 15, 2031); upon settlement, our cash obligation will not exceed the principal amount; and interest paid through maturity is at a rate of 4.25%; and

(ii)

Our 2018 Credit Agreement includes the mandatory quarterly amortization payments on the term loan as of December 31, 2019, and the interest paid throughout the life of the term loan is based upon the interest rate applicable as of December 31, 2019.

Our long-term debt obligations are discussed in more detail in Note 5 to our Financial Statements.

Our operating leases are discussed in Note 6 to our Financial Statements.  As of December 31, 2019, our purchase obligations consist primarily of our expected minimum base fees under the Ensono service agreement, which includes embedded lease components related to processors at our outsourced data center environment (discussed in Notes 6 and 11 to our Financial Statements).

Of the total contractual obligations and commercial commitments above, approximately $490 million is reflected on our Balance Sheet.

Off-Balance Sheet Arrangements

None

Capital Resources

The following are the key items to consider in assessing our sources and uses of capital resources:

Current Sources of Capital Resources.

 

•

Cash, Cash Equivalents and Short-term Investments.  As of December 31, 2019, we had cash, cash equivalents, and short-term investments of $182.7 million, of which approximately 64% is in U.S. Dollars and held in the U.S.  We have $2.7 million of restricted cash included in cash and cash equivalents, used primarily to collateralize outstanding letters of credit.  For the remainder of the monies denominated in foreign currencies and/or located outside the U.S., we do not anticipate any material amounts being unavailable for use in running our business.

 

•

Operating Cash Flows.  As described in the Liquidity section above, we believe we have the ability to generate strong cash flows to fund our operating activities and act as a source of funds for our capital resource needs.

 

•

Revolving Loan Facility.  We currently have a $200 million revolving loan facility, our 2018 Revolver. As of December 31, 2019, we had no borrowing outstanding on our 2018 Revolver and had the entire $200 million available to us.  Our long-term debt obligations are discussed in more detail in Note 5 to our Financial Statements.

35

 

Uses/Potential Uses of Capital Resources. Below are the key items to consider in assessing our uses/potential uses of capital resources:

 

•

Common Stock Repurchases.  We have made repurchases of our common stock in the past under our Stock Repurchase Program.  As of December 31, 2019, we had 5.0 million shares authorized for repurchase remaining under our Stock Repurchase Program.  Our 2018 Credit Agreement places certain limitations on our ability to repurchase our common stock.  

Under our Stock Repurchase Program, we may repurchase shares in the open market or in privately negotiated transactions, including through an accelerated stock repurchase plan or under a SEC Rule 10b5-1 plan.  The actual timing and amount of share repurchases are dependent on the current market conditions and other business-related factors.  Our common stock repurchases are discussed in more detail in Note 11 to our Financial Statements.

During 2019, we repurchased 0.6 million shares of our common stock for $25.5 million (weighted-average price of $44.17 per share) under our Stock Repurchase Program.

Outside of our Stock Repurchase Program, during 2019, we repurchased from our employees and then cancelled 0.1 million shares of our common stock for $5.1 million in connection with minimum tax withholding requirements resulting from the vesting of restricted stock under our stock incentive plans.

 

•

Cash Dividends.  During the year ended December 31, 2019, the Board declared dividends totaling $29.4 million.  Going forward, we expect to pay cash dividends each year in March, June, September, and December, with the amount and timing subject to the Board’s approval.

 

•

Acquisitions.  In July 2019, we paid approximately $13 million of the remaining purchase price from the 2018 Forte acquisition, that had been held back subject to certain tax filings.  Additionally, the Forte purchase agreement includes provisions for $18.8 million of potential future earn-out payments over a four-year measurement period.  The earn-out payments are tied to performance-based goals and continued employment by the eligible recipients.  As of December 31, 2019, we have made no earn-out payments.

In January 2020, we acquired certain assets of Tekzenit for an initial purchase price of approximately $10 million.  The purchase agreement includes provisions for additional purchase price payments in the form of earn-out and qualified sales payments for up to $10 million over a three-year measurement period upon meeting certain financial and sales criteria.  

These acquisitions were funded from currently available cash.  Our acquisitions are discussed in more detail in Note 7 to our Financial Statements.  As part of our growth strategy, we are continually evaluating potential business and/or asset acquisitions and investments in market share expansion with our existing and potential new clients and expansion into verticals outside the global communications market.

 

•

Equity Method Investment.  In the first quarter of 2019, we made an additional $4 million investment in a payment technology and services company that enables omni-channel digital payments in Latin America.  As of December 31, 2019, we held an 8% noncontrolling interest with a carrying value of $6.6 million.  See Note 2 to our Financial Statements for additional discussion.

 

•

Capital Expenditures.  During 2019, we spent $37.3 million on capital expenditures.  As of December 31, 2019, we have made no significant capital expenditure commitments.  

 

•

Stock Warrants.  We have issued Stock Warrants with an exercise price of $26.68 per warrant to Comcast as an incentive for Comcast to convert new customer accounts to ACP.  Once vested, Comcast may exercise the Stock Warrants and elect either physical delivery of common shares or net share settlement (cashless exercise).  Alternatively, the exercise of the Stock Warrants may be settled with cash based solely on our approval, or if Comcast were to beneficially own or control in excess of 19.99% of the common stock or voting of the Company.  In December 2019, Comcast exercised their remaining 0.4 million of vested Stock Warrants, which we net cash settled under the provision of the Warrant Agreement.  The fair value of the Stock Warrants was $24.6 million (weighted-average price of $56.12 per share), resulting in a net cash settlement of $12.9 million.  As of December 31, 2019, approximately 1.0 million Stock Warrants are outstanding, none of which are vested.

The Stock Warrants are discussed in more detail in Note 12 to our Financial Statements.  

 

•

Long-Term Debt.  As of December 31, 2019, our long-term debt consisted of the following: (i) 2016 Convertible Notes with a par value of $230.0 million; and (ii) 2018 Credit Agreement term loan borrowings of $136.9 million.  

36

 

2016 Convertible Notes

During the next twelve months, there are no scheduled conversion triggers on our 2016 Convertible Notes.  As a result, we expect our required debt service cash outlay during the next twelve months for the 2016 Convertible Notes to be limited to interest payments of $9.8 million.

2018 Credit Agreement

Our 2018 Credit Agreement mandatory repayments and the cash interest expense (based upon current then interest rates) for the next twelve months is $10.3 million, and $5.1 million, respectively.  We have the ability to make prepayments on our 2018 Credit Agreement without penalty.

Our long-term debt obligations are discussed in more detail in Note 5 to our Financial Statements.  

In summary, we expect to continue to have material needs for capital resources going forward, as noted above.  We believe that our current cash, cash equivalents and short-term investments balances and our 2018 Revolver, together with cash expected to be generated in the future from our current operating activities, will be sufficient to meet our anticipated capital resource requirements for at least the next twelve months.  We also believe we could obtain additional capital through other debt sources which may be available to us if deemed appropriate.

 

Item  7A.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices.  As of December 31, 2019, we are exposed to various market risks, including changes in interest rates, fluctuations and changes in the market value of our cash equivalents and short-term investments, and changes in foreign currency exchange rates.  We have not historically entered into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk

Long-Term Debt.  The interest rate on our 2016 Convertible Notes is fixed, and thus, as it relates to our convertible debt borrowings, we are not exposed to changes in interest rates.

The interest rates under our 2018 Credit Agreement are based upon an adjusted LIBOR rate plus an applicable margin, or an alternate base rate plus an applicable margin.  Refer to Note 5 to our Financial Statements for further details of our long-term debt.

A hypothetical adverse change of 10% in the December 31, 2019 adjusted LIBOR rate would not have had a material impact upon our results of operations.

Market Risk

Cash Equivalents and Short-Term Investments.  Our cash and cash equivalents as of December 31, 2019 and 2018 were $156.6 million and $139.3 million, respectively.  Certain of our cash balances are “swept” into overnight money market accounts on a daily basis, and at times, any excess funds are invested in low-risk, somewhat longer term, cash equivalent instruments and short-term investments.  Our cash equivalents are invested primarily in institutional money market funds, commercial paper, and time deposits held at major banks.  We have minimal market risk for our cash and cash equivalents due to the relatively short maturities of the instruments.

Our short-term investments as of December 31, 2019 and 2018 were $26.1 million and $23.6 million, respectively.  Currently, we utilize short-term investments as a means to invest our excess cash only in the U.S. The day-to-day management of our short-term investments is performed by a large financial institution in the U.S., using strict and formal investment guidelines approved by our Board.  Under these guidelines, short-term investments are limited to certain acceptable investments with: (i) a maximum maturity; (ii) a maximum concentration and diversification; and (iii) a minimum acceptable credit quality.  At this time, we believe we have minimal liquidity risk associated with the short-term investments included in our portfolio.

Settlement Assets.  We are exposed to market risk associated with cash held on behalf of our clients related to our payment processing services. As of December 31, 2019 and 2018, we had $169.3 million and $124.6 million, respectively, of cash collected on behalf of our clients which is held for an established holding period until settlement with the client.  The holding period is generally one to four business days depending on the payment model and contractual terms with the client.  During the holding period, cash is held in accounts with various major financial institutions in the U.S. in an amount equal to at least 100% of the aggregate amount owed to our clients.  These balances can significantly fluctuate between periods due to activity at the end of the period and the day in which the period ends.

37

 

Long-Term Debt.  The fair value of our convertible debt is exposed to market risk.  We do not record our convertible debt at fair value but present the fair value for disclosure purposes (see Note 2 to our Financial Statements).  Generally, the fair value of our convertible debt is impacted by changes in interest rates and changes in the price and volatility of our common stock.  As of December 31, 2019, the fair value of the 2016 Convertible Notes was estimated at $262.8 million using quoted market prices.

Foreign Currency Exchange Rate Risk

Due to foreign operations around the world, our balance sheet and income statement are exposed to foreign currency exchange risk due to the fluctuations in the value of currencies in which we conduct business.  While we attempt to maximize natural hedges by incurring expenses in the same currency in which we contract revenue, the related expenses for that revenue could be in one or more differing currencies than the revenue stream.

During the year ended December 31, 2019, we generated approximately 88% of our revenues in U.S. dollars.  We expect that, in the foreseeable future, we will continue to generate a very large percentage of our revenues in U.S. dollars.

As of December 31, 2019 and 2018, the carrying amounts of our monetary assets and monetary liabilities on the books of our non-U.S. subsidiaries in currencies denominated in a currency other than the functional currency of those non-U.S. subsidiaries are as follows (in thousands, in U.S. dollar equivalents):

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Monetary

 

 

Monetary

 

 

Monetary

 

 

Monetary

 

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

 

Assets

 

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

 

 

A hypothetical adverse change of 10% in the December 31, 2019 exchange rates would not have had a material impact upon our results of operations.

 

 

 

38

 

Item 8.

Financial Statements and Supplementary Data

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

 

Management's Report on Internal Control Over Financial Reporting

  

40

Reports of Independent Registered Public Accounting Firm

  

41

Consolidated Balance Sheets as of December 31, 2019 and 2018

  

44

Consolidated Statements of Income for the Years Ended December 31, 2019, 2018, and 2017

  

45

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018, and 2017

  

46

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018, and 2017

  

47

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017 

  

48

Notes to Consolidated Financial Statements

  

49

 

 

 

39

 

Management’s Report on Internal Control Over Financial Reporting

Management of CSG Systems International, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

 

(i)

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

(ii)

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

(iii)

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2019.

The Company’s independent registered public accounting firm, KPMG LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. That report appears immediately following.

 

 

 

40

 

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
CSG Systems International, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited CSG Systems International, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes  (collectively, the consolidated financial statements), and our report dated February 21, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Omaha, Nebraska
February 21, 2020

 

 

41

 

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
CSG Systems International, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CSG Systems International, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Adoption of ASC Topic 842 in 2019

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of ASC Topic 842, Leases (ASC 842). The Company adopted the standard using the effective date method, and as such, the 2018 and 2017 comparative information in the financial statements has not been adjusted and continues to be as previously reported.

Adoption of ASC Topic 606 in 2018

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of revenue recognition in 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers (ASC 606). The Company adopted the standard using the cumulative effect method, and as such, the 2017 comparative information in the financial statements has not been adjusted and continues to be as previously reported.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of amendments, change requests, or statements of work with significant clients

As discussed in Note 3 to the consolidated financial statements, the Company generated 43% of its revenues from its significant clients. The contracts with these clients are subject to modification in the form of amendments, change requests, or statements of

42

 

work (contract modifications), which can occur frequently. The Company’s accounting for customer contracts requires judgments regarding whether each contract modification is treated as a separate contract or modification of an existing contract. The judgments made in this area, specifically those related to significant clients, could impact the timing of revenue recognized.

We identified the evaluation of contract modifications with significant clients as a critical audit matter.  In particular, assessing the Company’s judgments regarding whether each contract modification is treated as a separate contract or a modification of an existing contract required a higher degree of auditor judgment.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s revenue recognition process, including controls over monitoring and evaluating contract modifications with significant clients. For certain contract modifications with significant clients, we performed an independent analysis of the accounting treatment as a separate contract or a modification of an existing contract. We compared our conclusions to those made by the Company for each selected contract modification.

Assessment of estimate of total expected hours to complete software and services projects

As discussed in Note 2 to the consolidated financial statements, the Company's software and services revenues relate primarily to software license sales and professional services. The initial sale of software products generally requires significant production, modification or customization. The Company has determined that the delivery of the software license and the related professional services required to implement the software represent one combined performance obligation that is satisfied over time based of hours worked (hours-based method). To determine the amount of revenue to record at each reporting period, the Company estimates the total expected hours necessary to complete a project, and records revenue proportional to the hours incurred to date compared to total expected hours. Accordingly, the revenue recognized for these contracts is dependent upon estimates of the total expected hours necessary to complete projects. The Company’s revenue from software and services totaled $52 million during the year.

We identified the assessment of the Company’s estimate of total expected hours to complete software and services projects as a critical audit matter. There was subjectivity in performing audit procedures due to the nature of the estimates and assumptions about future events, which could impact the timing of the revenue recognized.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process of estimating of expected hours to complete a project. We assessed the Company’s historical accuracy in estimating expected hours by performing a retrospective analysis of actual hours incurred compared to initially estimated hours for a sample of completed and in-progress customer contracts. For a sample of in-progress customer contracts, we read the customer contract to understand the nature and complexity of the work to be performed. In addition, we compared the estimate of total expected hours as of December 31, 2019 to the initial estimate of total expected hours. Based on this comparison, we examined documentation evidencing the change in scope of work, for certain contracts.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Omaha, Nebraska
February 21, 2020

 

 

 

43

 

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current 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

 

Trade accounts receivable:

 

 

 

 

 

 

 

 

Billed, net of allowance of $3,735 and $3,115

 

 

244,058

 

 

 

235,827

 

Unbilled

 

 

33,450

 

 

 

37,227

 

Income taxes receivable

 

 

4,297

 

 

 

6,720

 

Other current assets

 

 

35,293

 

 

 

32,286

 

Total current assets

 

 

669,082

 

 

 

599,567

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation of $98,029 and $93,278

 

 

84,429

 

 

 

81,813

 

Operating lease right-of-use assets

 

 

94,847

 

 

 

-

 

Software, net of amortization of $125,437 and $119,381

 

 

32,526

 

 

 

36,400

 

Goodwill

 

 

259,164

 

 

 

255,816

 

Acquired client contracts, net of amortization of $93,767 and $82,692

 

 

55,105

 

 

 

65,456

 

Client contract costs, net of amortization of $31,526 and $43,051

 

 

50,746

 

 

 

37,289

 

Deferred income taxes

 

 

9,392

 

 

 

11,087

 

Other assets

 

 

27,739

 

 

 

26,934

 

Total non-current assets

 

 

613,948

 

 

 

514,795

 

Total assets

 

$

1,283,030

 

 

$

1,114,362

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

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

 

Income taxes payable

 

 

2,806

 

 

 

218

 

Other current liabilities

 

 

20,778

 

 

 

35,442

 

Total current liabilities

 

 

418,693

 

 

 

350,391

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $10,053 and $14,549

 

 

346,509

 

 

 

352,326

 

Operating lease liabilities

 

 

78,936

 

 

 

-

 

Deferred revenue

 

 

18,552

 

 

 

17,527

 

Income taxes payable

 

 

2,543

 

 

 

2,284

 

Deferred income taxes

 

 

6,376

 

 

 

8,205

 

Other non-current liabilities

 

 

14,759

 

 

 

22,605

 

Total non-current liabilities

 

 

467,675

 

 

 

402,947

 

Total liabilities

 

 

886,368

 

 

 

753,338

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, par value $.01 per share; 100,000 shares authorized; 3,661 and 4,460 shares reserved for employee stock purchase plan and stock incentive plans; 32,891 and 33,158 shares outstanding

 

 

696

 

 

 

693

 

Common stock warrants; zero and 439 warrants vested; 950 and 1,425 issued

 

 

-

 

 

 

9,082

 

Additional paid-in capital

 

 

454,663

 

 

 

441,417

 

Treasury stock, at cost; 35,356 and 34,779 shares

 

 

(867,817

)

 

 

(842,360

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains on short-term investments, net of tax

 

 

16

 

 

 

2

 

Cumulative foreign currency translation adjustments

 

 

(39,519

)

 

 

(42,937

)

Accumulated earnings

 

 

848,623

 

 

 

795,127

 

Total stockholders' equity

 

 

396,662

 

 

 

361,024

 

Total liabilities and stockholders' equity

 

$

1,283,030

 

 

$

1,114,362

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

44

 

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

 

 

Year Ended December 31,

 

 

 

 

2019

 

 

 

2018

 

 

 

2017

 

Revenues

 

$

996,810

 

 

$

875,059

 

 

$

789,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation, shown separately below)

 

 

525,122

 

 

 

449,820

 

 

 

394,811

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

32,051

 

 

 

32,488

 

 

 

32,415

 

Diluted

 

 

32,465

 

 

 

32,855

 

 

 

32,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.58

 

 

$

2.04

 

 

$

1.89

 

Diluted

 

 

2.55

 

 

 

2.01

 

 

 

1.87

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

45

 

 

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

2019

 

 

 

2018

 

 

 

2017

 

Net income

 

$

82,770

 

 

$

66,130

 

 

$

61,364

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

46

 

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

 

Shares of Common Stock Outstanding

 

Common Stock

 

Common Stock Warrants

 

Additional Paid-in Capital

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated Earnings

 

Total Stockholders' Equity

 

BALANCE, January 1, 2017

 

32,261

 

$

672

 

$

16,007

 

$

391,209

 

$

(826,002

)

$

(45,372

)

$

714,846

 

$

251,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

61,364

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

71

 

 

-

 

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

16,479

 

 

-

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,914

 

Repurchase of common stock

 

(749

)

 

(2

)

 

-

 

 

(10,099

)

 

(20,548

)

 

-

 

 

-

 

 

(30,649

)

Issuance of common stock pursuant to employee stock purchase plan

 

50

 

 

-

 

 

-

 

 

1,776

 

 

-

 

 

-

 

 

-

 

 

1,776

 

Issuance of restricted stock pursuant to stock-based compensation plans

 

649

 

 

6

 

 

-

 

 

(6

)

 

-

 

 

-

 

 

-

 

 

-

 

Cancellation of restricted stock issued pursuant to stock-based compensation plans

 

(39

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

20,996

 

 

-

 

 

-

 

 

-

 

 

20,996

 

Issuance of common stock warrants

 

-

 

 

-

 

 

9,082

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9,082

 

Exercise of common stock warrants

 

649

 

 

6

 

 

(16,007

)

 

641

 

 

15,360

 

 

-

 

 

-

 

 

-

 

Repurchase of convertible notes, net of tax

 

695

 

 

7

 

 

-

 

 

22,574

 

 

16,458

 

 

-

 

 

-

 

 

39,039

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(26,772

)

 

(26,772

)

BALANCE, December 31, 2017

 

33,516

 

 

689

 

 

9,082

 

 

427,091

 

 

(814,732

)

 

(28,822

)

 

749,438

 

 

342,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

66,130

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

90

 

 

-

 

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(14,203

)

 

-

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,017

 

Repurchase of common stock

 

(862

)

 

-

 

 

-

 

 

(7,339

)

 

(27,628

)

 

-

 

 

-

 

 

(34,967

)

Issuance of common stock pursuant to employee stock purchase plan

 

71

 

 

-

 

 

-

 

 

2,311

 

 

-

 

 

-

 

 

-

 

 

2,311

 

Issuance of restricted stock pursuant to stock-based compensation plans

 

553

 

 

5

 

 

-

 

 

(5

)

 

-

 

 

-

 

 

-

 

 

-

 

Cancellation of restricted stock issued pursuant to stock-based compensation plans

 

(120

)

 

(1

)

 

-

 

 

1

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

19,358

 

 

-

 

 

-

 

 

-

 

 

19,358

 

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(28,003

)

 

(28,003

)

Adjustments due to adoption of new accounting standards

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

7,562

 

 

7,562

 

BALANCE, December 31, 2018

 

33,158

 

 

693

 

 

9,082

 

 

441,417

 

 

(842,360

)

 

(42,935

)

 

795,127

 

 

361,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

82,770

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

14

 

 

-

 

 

 

 

Foreign currency translation adjustments

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

3,418

 

 

-

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86,202

 

Repurchase of common stock

 

(693

)

 

-

 

 

-

 

 

(5,068

)

 

(25,457

)

 

-

 

 

-

 

 

(30,525

)

Issuance of common stock pursuant to employee stock purchase plan

 

55

 

 

-

 

 

-

 

 

2,227

 

 

-

 

 

-

 

 

-

 

 

2,227

 

Issuance of restricted stock pursuant to stock-based compensation plans

 

513

 

 

4

 

 

-

 

 

(4

)

 

-

 

 

-

 

 

-

 

 

-

 

Cancellation of restricted stock issued pursuant to stock-based compensation plans

 

(142

)

 

(1

)

 

-

 

 

1

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based compensation expense

 

-

 

 

-

 

 

-

 

 

19,919

 

 

-

 

 

-

 

 

-

 

 

19,919

 

Exercise of common stock warrants

 

 

 

 

 

 

 

(9,082

)

 

(3,829

)

 

 

 

 

 

 

 

 

 

 

(12,911

)

Dividends

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(29,274

)

 

(29,274

)

BALANCE, December 31, 2019

$

32,891

 

$

696

 

$

-

 

$

454,663

 

$

(867,817

)

$

(39,503

)

$

848,623

 

$

396,662

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

47

 

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

Year Ended

 

 

 

 

 

2019

 

 

 

2018

 

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

82,770

 

 

$

66,130

 

 

$

61,364

 

Adjustments to reconcile net income to net cash provided by operating activities-

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

21,422

 

 

 

18,304

 

 

 

13,380

 

Amortization

 

 

 

45,700

 

 

 

44,328

 

 

 

29,501

 

Amortization of original issue discount

 

 

 

2,819

 

 

 

2,664

 

 

 

2,790

 

Asset impairment

 

 

 

438

 

 

 

1,851

 

 

 

3,135

 

Gain on short-term investments and other

 

 

 

(364

)

 

 

(101

)

 

 

(184

)

Loss on extinguishment of debt

 

 

 

-

 

 

 

810

 

 

 

-

 

Deferred income taxes

 

 

 

(77

)

 

 

4,913

 

 

 

7,112

 

Stock-based compensation

 

 

 

19,919

 

 

 

19,358

 

 

 

21,049

 

Changes in operating assets and liabilities, net of acquired amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

 

(4,015

)

 

 

(138

)

 

 

(6,421

)

Other current and non-current assets and liabilities

 

 

 

(17,727

)

 

 

(23,179

)

 

 

2,875

 

Income taxes payable/receivable

 

 

 

4,771

 

 

 

5,055

 

 

 

(2,729

)

Trade accounts payable and accrued liabilities

 

 

 

(10,317

)

 

 

(7,146

)

 

 

(4,377

)

Deferred revenue

 

 

 

5,737

 

 

 

10,492

 

 

 

(300

)

Net cash provided by operating activities

 

 

 

151,076

 

 

 

143,341

 

 

 

127,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of software, property and equipment

 

 

 

(37,319

)

 

 

(57,104

)

 

 

(28,942

)

Purchases of short-term investments

 

 

 

(54,258

)

 

 

(75,022

)

 

 

(182,247

)

Proceeds from sale/maturity of short-term investments

 

 

 

52,135

 

 

 

190,778

 

 

 

193,465

 

Acquisition of and investments in business, net of cash acquired

 

 

 

(17,194

)

 

 

(144,791

)

 

 

-

 

Acquisition of and investments in client contracts

 

 

 

-

 

 

 

-

 

 

 

(12,180

)

Net cash used in investing activities

 

 

 

(56,636

)

 

 

(86,139

)

 

 

(29,904

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

 

2,227

 

 

 

2,311

 

 

 

1,776

 

Payment of cash dividends

 

 

 

(29,126

)

 

 

(27,979

)

 

 

(26,850

)

Repurchase of common stock

 

 

 

(30,918

)

 

 

(34,726

)

 

 

(30,649

)

Exercise of common stock warrants

 

 

 

(12,911

)

 

 

-

 

 

 

-

 

Proceeds from long-term debt

 

 

 

-

 

 

 

150,000

 

 

 

-

 

Payments on long-term debt

 

 

 

(7,500

)

 

 

(125,625

)

 

 

(15,000

)

Settlement of convertible notes

 

 

 

-

 

 

 

-

 

 

 

(34,771

)

Payments of deferred financing costs

 

 

 

-

 

 

 

(1,490

)

 

 

-

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for-

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

$

16,064

 

 

$

15,857

 

 

$

14,729

 

Income taxes

 

 

 

18,358

 

 

 

10,426

 

 

 

22,144

 

 

The accompanying notes are an integral part of these consolidated financial statements.


48

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

General

CSG Systems International, Inc. (the “Company”, “CSG”, or forms of the pronoun “we”), a Delaware corporation, was formed in October 1994 and is based in Greenwood Village, Colorado. We are a revenue management, customer experience, and payment solutions provider primarily serving the global communications industry. We have over 35 years of experience supporting communications service providers’ management of their revenue, customer communications, and digital ecosystem as they advance their video, voice, data content, and digital services to consumers. Over the years, we have focused our research and development (“R&D”) and acquisition investments on expanding our solution set to address the complex, transformative needs of service providers. We are a S&P SmallCap 600 company.

The accompanying Consolidated Financial Statements (“Financial Statements”) are prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”).

 

2.

Summary of Significant Accounting Policies

Principles of Consolidation.  Our Financial Statements include all of our accounts and our subsidiaries’ accounts. All material intercompany accounts and transactions have been eliminated.

Translation of Foreign Currency. Our foreign subsidiaries use the local currency of the countries in which they operate as their functional currency. Their assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues, expenses, and cash flows are translated at the average rates of exchange prevailing during the period. Foreign currency translation adjustments are included in comprehensive income in stockholders’ equity. Foreign currency transaction gains and losses are included in the determination of net income.

Use of Estimates in Preparation of Our Financial Statements.  The preparation of our Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more critical estimates and related assumptions that affect our financial position and results of operations are in the areas of: (i) revenue recognition; (ii) impairment assessments of long-lived assets; (iii) income taxes; and (iv) loss contingencies.

Revenue Recognition.  We adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) as of January 1, 2018 using the cumulative effect method and recorded a cumulative adjustment increasing beginning retained earnings (net of tax) by approximately $7 million, primarily related to contracts that we were previously required to defer revenue as we did not have vendor specific objective evidence of fair value for certain undelivered elements.  Since we adopted ASC 606 using the cumulative effect method, comparative information in our Financial Statements for the year ended December 31, 2017 has not been adjusted and continues to be as previously reported.  The adoption of ASC 606 did not have a material impact to our Income Statements in any period presented.  The adoption of ASC 606 resulted in a change in the presentation of investments in client contracts in our Cash Flows.  Previous to the adoption, investments in client contracts were included in cash flows from investing activities.  Investments in client contracts for the years ended December 31, 2019 and 2018 are included in cash flows from operating activities.

Our revenue from client contracts is primarily related to our cloud and related solutions and, to a lesser degree, software and service and related maintenance arrangements, and is measured based on consideration specified within each of our contracts, excluding sales incentives and amounts collected on behalf of third parties, if any. We account for various products and services separately if they are distinct performance obligations. A product or service, or group of products or services, is a distinct performance obligation if it is separately identifiable from other items in the context of the contract and if our client can benefit from the product or service on their own or with other resources that are readily available to that client. We recognize revenue when we satisfy our performance obligations by transferring control of a particular product or service, or group of products or services, to our clients, as described in more detail below. Taxes assessed on our products and services based on governmental authorities at the time of invoicing are excluded from our revenues.

Cloud and Related Solutions

Our cloud and related solutions revenues relate to: (i) our software-as-a-service (“SaaS”), revenue management solutions, and various related ancillary services; (ii) our managed services offering in which we operate software solutions (primarily our software solutions) on behalf of our clients; and (iii) cloud-based payment processing transaction services.  

49

 

We contract for our cloud-based revenue management solutions using long-term arrangements whose terms have typically ranged from three to five years. These arrangements consist of a series of multiple services delivered daily or monthly, to include such things as: (i) revenue and customer experience services; (ii) business support services (e.g., workforce management tools, consumer credit verifications, etc.); (iii) digital enablement and delivery functions; and (iv) customer statement invoice printing and mailing services. The fees for these services typically are billed to our clients monthly based upon actual monthly volumes and/or usage of services (e.g., the number of client customers maintained on our solutions, the number of transactions processed on our solutions, and/or the quantity and content of the monthly statements and mailings processed through our solutions).

For cloud-based revenue management solution contracts, the total contract consideration (including impacts of discounts or incentives) is primarily variable dependent upon actual monthly volumes and/or usage of services; however, these contracts can also include ancillary fixed consideration in the form of one-time, monthly or annual fees. Although there may be multiple performance obligations, there is generally no allocation of value between the individual performance obligations as all are considered cloud and related solutions revenues that are recognized based on activities performed in each daily or monthly period.

We contract for managed services solutions using long-term arrangements whose terms have typically ranged from three to five years.  Under managed services agreements, we may operate software products (primarily our software solutions) on behalf of our clients: (i) out of a client’s data center; (ii) out of a data center we own and operate; or (iii) out of a third-party data center we contract with for such services. Managed services can also include us providing other services, such as transitional services, fulfillment, remittance processing, operational consulting, back office, and end user billing services.

For managed services contracts, the total contract consideration is typically a fixed monthly fee, but these contracts may also have variable fee components. The fees for these services typically are billed to our clients on a monthly basis.  Unless managed services are included with a software license contract (as discussed further below), there is generally only one performance obligation and revenues are recognized for these arrangements on a ratable basis as the services are performed.

Our contracts for payment processing transaction services are generally month-to-month or fixed term with automatic renewals. Services provided under these arrangements primarily include automated clearing house (ACH) transaction processing, credit/debit card processing, web-based and telephone payment processing and real-time check verification and authentication services. The fees for these services typically are billed on a monthly basis.

Our payment processing services are comprised of one performance obligation. Revenues for payment processing services is based primarily on a fee per transaction or a percentage of the transaction principal and recognized as delivered over a series of daily service periods.  Transaction fees collected from clients are recognized as revenue on a gross basis when we are the principal in completing the payment processing transaction. As a principal to the transaction, we control the service of processing payments on our platform. We bear primary responsibility for the fulfillment of the payment service, contract directly with our clients, and have full discretion in determining the fee charged to our clients which is independent of the costs we incur when we utilize payment processors or other financial institutions to perform services on our behalf.  We therefore bear full margin risk when completing a payment processing transaction.  Transaction fees paid to third-party payment processors and other financial institutions are primarily comprised of interchange and other payment-related fees paid in conjunction with the delivery of service to clients under our payment services contracts.  These fees are recognized in cost of revenues.  

Fees related to set-up or implementation activities for both cloud-based solution and managed services contracts are deferred and recognized ratably over the related service period to which the activities relate.

Depending on the significance of variable consideration, number of products/services, complex pricing structures and long-term nature of these types of contracts, the judgments and estimates made in this area could have a significant effect on the amount and timing of revenues recognized in any period.

Software and Services

Our software and services revenues relate primarily to: (i) software license sales on either a perpetual or term license basis; and (ii) professional services to implement the software. Our software and services contracts are often contracted in bundled arrangements that include not only the software license and related implementation services, but they can also include maintenance, managed services and/or additional professional services.

50

 

For our software arrangements, the total contract consideration is allocated between the separate performance obligations based on stand-alone selling prices for software licenses, cost plus applicable margin for services and established pricing for maintenance.  The initial sale of our software products generally requires significant production, modification or customization, such that the delivery of the software license and the related professional services required to implement the software represent one combined performance obligation that is satisfied over time based on hours worked (hours-based method). We are using hours worked on the project, compared against expected hours necessary to complete the project, as the measure to determine progress toward completion as we believe it is the most appropriate metric to measure such progress. The software and services fees are generally fixed fees billed to our clients on a milestone or date basis.

The determination of the performance obligations and allocation of value for software license arrangements require significant judgment.  We generally determine stand-alone selling prices using pricing calculations (which include regional market factors) for our software license fees and maintenance, and cost-plus margins for services. Additionally, our use of an hours-based method of accounting for software license and other professional services performance obligations that are satisfied over time requires estimates of total project revenues and costs, along with the expected hours necessary to complete a project. Changes in estimates as a result of additional information or experience on a project as work progresses are inherent characteristics of this method of revenue recognition as we are exposed to various business risks in completing these types of performance obligations. The estimation process to support our hours-based recognition method is more difficult for projects of greater length and/or complexity. The judgments and estimates made in this area could: (i) have a significant effect on revenues recognized in any period by changing the amount and/or the timing of the revenues recognized; and/or (ii) impact the expected profitability of a project, including whether an overall loss on an arrangement has occurred. To mitigate the inherent risks in using this hours-based method, we track our performance on projects and reevaluate the appropriateness of our estimates as part of our monthly accounting cycle.

In certain instances, we sell software license volume upgrades, which provide our clients the right to use our software to process higher transaction volume levels. In these instances, we analyze the contract to determine if the volume upgrade is a separate performance obligation and if so, we recognize the value associated with the software license as revenues on the effective date of the volume upgrade.

A portion of our professional services revenues are contracted separately (e.g., business consulting services, etc.). Such contracts can either be on a fixed-price or time-and-materials basis.  Revenues from fixed-price professional service contracts are recognized using an hours-based method, as these professional services represent a performance obligation that is satisfied over time.  Revenues from professional services contracts billed on a time-and-materials basis are recognized as the services are performed.

Maintenance

Our maintenance revenues relates primarily to support of our software once it has been implemented.  Maintenance revenues are recognized ratably over the software maintenance period as services are provided. Our maintenance consists primarily of client and product support, technical updates (e.g., bug fixes, etc.), and unspecified upgrades or enhancements to our software products. If specified upgrades or enhancements are offered in a contract, which are rare, they are accounted for as a separate performance obligation. Maintenance can be invoiced to our clients on a monthly, quarterly or annual basis.

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2019, our aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $1 billion, which is made up of fixed fee consideration and guaranteed minimums expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied). We expect to recognize approximately 80% of this amount by the end of 2022, with the remaining amount recognized by the end of 2028. We have excluded from this amount variable consideration expected to be recognized in the future related to performance obligations that are unsatisfied. The majority of our future revenues are related to our cloud and related solution client contracts that include variable consideration dependent upon a series of monthly volumes and/or daily usage of services and have contractual terms ending from 2020 through 2028.  

Disaggregation of Revenues

The nature, amount, timing and uncertainty of our revenue and how revenue and cash flows are affected by economic factors is most appropriately depicted by type of revenue as presented below (in thousands) and by geographic region as presented in Note 3.

 

 

 

For the Year Ended December 31,

 

 

 

2019

 

 

2018

 

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

 

51

 

Billed and Unbilled Accounts Receivable. Billed accounts receivable represents our unconditional rights to consideration. Once invoiced, our payment terms are generally between 30-60 days, and rarely do we have contracts with financing arrangements. Unbilled accounts receivable represents our rights to consideration for work completed but not billed.  Unbilled accounts receivable is transferred to billed accounts receivable when the rights become unconditional which is generally at the time of invoicing.

The following table rolls forward our unbilled accounts receivable from January 1, 2018 to December 31, 2019 (in thousands):

 

 

 

Unbilled Receivables

 

Beginning Balance, January 1, 2018

 

$

33,104

 

Recognized during the period

 

 

237,134

 

Reclassified to receivables

 

 

(231,689

)

Other

 

 

(1,322

)

Ending Balance, December 31, 2018

 

 

37,227

 

Recognized during the period

 

 

252,445

 

Reclassified to receivables

 

 

(255,983

)

Other

 

 

(239

)

Ending Balance, December 31, 2019

 

$

33,450

 

 

Deferred Revenue.  Deferred revenue represents consideration received from clients in advance of services being performed.

The following table rolls forward our deferred revenue from January 1, 2018 to December 31, 2019 (in thousands):

 

 

 

Deferred Revenue

 

Beginning Balance, January 1, 2018

 

$

(47,611

)

Revenue recognized that was included in deferred revenue at the beginning of the period

 

 

38,832

 

Consideration received in advance of services performed net of revenue recognized in the current period

 

 

(50,861

)

Other

 

 

1,877

 

Ending Balance, December 31, 2018

 

 

(57,763

)

Revenue recognized that was included in deferred revenue at the beginning of the period

 

 

39,352

 

Consideration received in advance of services performed net of revenue recognized in the current period

 

 

(44,051

)

Other

 

 

(1,184

)

Ending Balance, December 31, 2019

 

$

(63,646

)

 

Postage.  We pass through to our clients the cost of postage that is incurred on behalf of those clients, and typically require an advance payment on expected postage costs. These advance payments are included in client deposits in the accompanying Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”) and are classified as current liabilities regardless of the contract period. We net the cost of postage against the postage reimbursements for those clients where we require advance deposits, and include the net amount (which is not material) in cloud and related solutions revenues.  

Cash and Cash Equivalents.  We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. As of December 31, 2019 and 2018, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of December 31, 2019 and 2018, we had $2.7 million and $3.0 million, respectively, of restricted cash that serves to collateralize outstanding letters of credit. This restricted cash is included in cash and cash equivalents in our Balance Sheets.

Short-term Investments and Other Financial Instruments.  Our financial instruments as of December 31, 2019 and 2018 include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and debt. Due to their short maturities, the carrying amounts of cash equivalents, accounts receivable, and accounts payable approximate their fair value.

Our short-term investments and certain of our cash equivalents are considered “available-for-sale” and are reported at fair value in our Balance Sheets, with unrealized gains and losses, net of the related income tax effect, excluded from earnings and reported in a separate component of stockholders’ equity. Realized and unrealized gains and losses were not material in any period presented.

52

 

Primarily all short-term investments held by us as of December 31, 2019 and 2018 have contractual maturities of less than two years from the time of acquisition. Our short-term investments at December 31, 2019 and 2018 consisted almost entirely of fixed income securities. Proceeds from the sale/maturity of short-term investments in 2019, 2018, and 2017 were $52.1 million, $190.8 million, and $193.5 million, respectively.

The following table represents the fair value hierarchy based upon three levels of inputs, of which Levels 1 and 2 are considered observable and Level 3 is unobservable, for our financial assets measured at fair value (in thousands):

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

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

 

 

Valuation inputs used to measure the fair values of our money market funds were derived from quoted market prices. The fair values of all other financial instruments are based upon pricing provided by third-party pricing services. These prices were derived from observable market inputs.

We have chosen not to record our debt at fair value, with changes recognized in earnings each reporting period.  The following table indicates the carrying value and estimated fair value of our debt as of the indicated periods (in thousands):

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

2018 Credit Agreement (carrying value including current maturities)

 

$

136,875

 

 

$

136,875

 

 

$

144,375

 

 

$

144,375

 

2016 Convertible debt (par value)

 

 

230,000

 

 

 

262,775

 

 

 

230,000

 

 

 

228,275

 

 

The fair value for our Credit Agreement was estimated using a discounted cash flow methodology, while the fair value for our convertible debt was estimated based upon quoted market prices or recent sales activity, both of which are considered Level 2 inputs.  See Note 5 for discussion regarding our debt.

Settlement Assets and Settlement Liabilities.  Settlement assets and settlement liabilities represent cash collected on behalf of our clients via payment processing services which is held for an established holding period until settlement with the client. The holding period is generally one to four business days depending on the payment model and contractual terms with the client. During the holding period, cash is held in trust with various major financial institutions and a corresponding liability is recorded for the amounts owed to the clients. At any given time, there may be differences between the cash held in trust and the corresponding liability due to the timing of operating-related cash transfers.

Concentrations of Credit Risk.  In the normal course of business, we are exposed to credit risk. The principal concentrations of credit risk relate to cash deposits, cash equivalents, short-term investments, and accounts receivable. We regularly monitor credit risk exposures and take steps to mitigate the likelihood of these exposures resulting in a loss. We hold our cash deposits, cash equivalents, and short-term investments with financial institutions we believe to be of sound financial condition.

We are exposed to credit risk related to settlement assets and risk of loss related to our settlement obligations. We hold our settlement assets in major financial institutions we believe to be of sound financial condition. To mitigate the risk of loss due to non-performance or non-payment by a client, we perform credit risk evaluations based on multiple criteria and may require a cash deposit from the client depending on the risk profile. If a deposit is required, the cash is held in a segregated bank account for the duration of the relationship with the client. These deposits are restricted and are fully offset by corresponding liabilities and are included in other assets and other liabilities in our Balance Sheet.

53

 

We generally do not require collateral or other security to support accounts receivable. We evaluate the credit worthiness of our clients in conjunction with our revenue recognition processes, as well as through our ongoing collectability assessment processes for accounts receivable. We maintain an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific clients, historical trends, and other information. We use various judgments and estimates in determining the adequacy of the allowance for doubtful accounts receivable. See Note 3 for additional details of our concentration of accounts receivable.

The activity in our allowance for doubtful accounts receivable is as follows (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

 

Property and Equipment.  Property and equipment are recorded at cost (or at estimated fair value if acquired in a business combination) and are depreciated over their estimated useful lives ranging from three to ten years. Leasehold improvements are depreciated over the shorter of their economic life or the lease term. Depreciation expense is computed using the straight-line method for financial reporting purposes. Depreciation expense for all property and equipment is reflected in our Income Statements separately in the aggregate and is not included in the cost of revenues or the other components of operating expenses. Depreciation for income tax purposes is computed using accelerated methods.

Software.  We expend substantial amounts on R&D, particularly for new solutions and services, or for enhancements of existing solutions and services. For development of software solutions that are to be licensed by us, we expense all costs related to the development of the software until technological feasibility is established. For development of software to be used internally (e.g., cloud-based systems software), we expense all costs prior to the application development stage.

During 2019, 2018, and 2017, we expended $128.0 million, $124.0 million, and $113.2 million, respectively, on R&D projects. We did not capitalize any R&D costs in 2019, 2018, and 2017, as the costs subject to capitalization during these periods were not material. We did not have any capitalized R&D costs included in our December 31, 2019 and 2018 Balance Sheets.

Realizability of Long-Lived Assets.  We evaluate our long-lived assets, other than goodwill, for possible impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. A long-lived asset is impaired if estimated future undiscounted cash flows associated with that asset are insufficient to recover the carrying amount of the long-lived asset. If deemed impaired, the long-lived asset is written down to its fair value.

Goodwill.  We evaluate our goodwill for impairment on an annual basis. In addition, we evaluate our goodwill on a more periodic basis (e.g., quarterly) if events occur or circumstances change that could indicate a potential impairment may have occurred. Goodwill is considered impaired if the carrying value of the reporting unit which includes the goodwill is greater than the estimated fair value of the reporting unit.

Contingencies.  We accrue for a loss contingency when: (i) it is probable that an asset has been impaired, or a liability has been incurred; and (ii) the amount of the loss can be reasonably estimated. The determination of accounting for loss contingencies is subject to various judgments and estimates. We do not record the benefit from a gain contingency until the benefit is realized.

Earnings Per Common Share (“EPS”). Basic and diluted EPS amounts are presented on the face of our Income Statements.

The reconciliation of the basic and diluted EPS denominators related to the common shares is included in the following table (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

 

The Convertible Notes have a dilutive effect only in those quarterly periods in which our average stock price exceeds the current effective conversion price (see Note 5).

54

 

The Stock Warrants have a dilutive effect only in those quarterly periods in which our average stock price exceeds the exercise price of $26.68 per warrant (under the treasury stock method) and are not subject to performance vesting conditions (see Note 12).  

Potentially dilutive common shares related to unvested restricted stock and Stock Warrants were excluded from the computation of diluted EPS, as the effect was antidilutive, were not material in any period presented.

Equity Method Investment.  During the twelve months ended December 31, 2019, we made an additional $4.0 million investment in a payment technology and services company that enables omni-channel digital payments in Latin America.  As of December 31, 2019 and 2018, we held an 8% and 4% noncontrolling interest with a carrying value of $6.6 million and $2.8 million, respectively. 

Stock-Based Compensation.  Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. We measure stock-based compensation cost at the grant date of the award, based on the estimated fair value of the award and recognize the cost (net of estimated forfeitures) over the requisite service period.

Income Taxes.  We account for income taxes using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Accounting Pronouncements Adopted.  In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842”).  This ASU requires lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  

We adopted ASC 842 in January 2019, utilizing the effective date method of transition. Since we adopted ASC 842 utilizing the effective date method, prior period information in our Financial Statements has not been adjusted and continues to be as previously reported. We elected the package of practical expedients permitted under the transition guidance within the new standard.  In conjunction with the adoption of ASC 842, we recorded a balance sheet gross up of approximately $80 million, related to the right-of-use assets and lease liabilities, and have included the amortization of the right-of-use-assets in the changes in other current and non-current assets and liabilities and the accretion and payments of lease liabilities in the changes in trade accounts payable and accrued liabilities, respectively, on our Statement of Cash Flows.

 

3.

Segment Reporting and Significant Concentration

Segment Information.  We have evaluated how our chief operating decision maker has organized our company for purposes of making operating decisions and assessing performance, and have concluded that as of December 31, 2019, we have one reportable segment.

Solutions and Services.  Our solutions and services help companies around the world monetize and digitally enable the customer experience by accurately capturing, managing, generating, and optimizing the interactions and revenues associated with their customers. We generate a substantial percentage of our revenues from customers utilizing Advanced Convergent Platform (“ACP”), a private cloud-based platform, and related customer communications management solutions (e.g. field force automation, analytics, electronic bill presentment, ACH, etc.) to the North American cable and satellite markets. In addition, a smaller portion of our revenues are generated from our public cloud revenue management and payments solutions serving service providers globally. These solutions serve a broad range of companies, including financial services, media and entertainment, government, and health care. Finally, we license certain solutions (e.g., mediation, partner management, rating, and charging) and provide our professional services to implement, configure, and maintain these solutions. These solutions are sometimes provided under a managed service arrangement, where we assume long-term responsibility for delivering our solutions and related operations under a defined scope and specified service levels.

Geographic Regions.  For 2019, 2018, and 2017, revenues attributable to our operations in the Americas were 87%, 85%, and 85%, respectively. We use the location of the client as the basis of attributing revenues to individual regions.

55

 

Financial information relating to our operations by geographic region is as follows (in thousands):

Total Revenues:

 

 

2019

 

 

2018

 

 

2017

 

Americas (principally the U.S.)

 

$

866,831

 

 

$

740,885

 

 

$

669,712

 

Europe, Middle East and Africa (principally Europe)

 

 

91,685

 

 

 

89,924

 

 

 

72,120

 

Asia Pacific

 

 

38,294

 

 

 

44,250

 

 

 

47,750

 

Total revenues

 

$

996,810

 

 

$

875,059

 

 

$

789,582

 

 

Property and Equipment:

 

As of December 31,

 

 

 

2019

 

 

2018

 

Americas (principally the U.S.)

 

$

70,990

 

 

$

72,079

 

Europe, Middle East and Africa (principally Europe)

 

 

1,564

 

 

 

2,056

 

Asia Pacific

 

 

11,875

 

 

 

7,678

 

Total property and equipment

 

$

84,429

 

 

$

81,813

 

Significant Clients and Industry Concentration.  A large percentage of our revenues have been generated from our two largest clients, which are Comcast Corporation (“Comcast”) and Charter Communications, Inc. (“Charter”).

Revenues from these clients represented the following percentages of our total revenues for the following years:

 

 

 

2019

 

 

2018

 

 

2017

 

Comcast

 

 

23

%

 

 

25

%

 

 

28

%

Charter

 

 

20

%

 

 

20

%

 

 

22

%

 

As of December 31, 2019 and 2018, the percentage of net billed accounts receivable balances attributable to these clients were as follows:

 

 

 

As of December 31,

 

 

 

2019

 

 

2018

 

Comcast

 

 

24

%

 

 

24

%

Charter

 

 

24

%

 

 

21

%

We expect to continue to generate a significant percentage of our future revenues from our largest clients, mentioned above.  There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of clients. Should a significant client: (i) terminate or fail to renew their contracts with us, in whole or in part for any reason; (ii) significantly reduce the number of customer accounts processed on our solutions, the price paid for our solutions and services, or the scope of solutions and services that we provide; or (iii) experience significant financial or operating difficulties, it could have a material adverse effect on our financial position and results of operations.

4.Long-Lived Assets

Property and Equipment.  Property and equipment at December 31 consisted of the following (in thousands, except years):

 

 

 

Useful Lives

 

 

 

 

 

 

 

 

 

 

 

(Years)

 

 

2019

 

 

2018

 

Computer equipment

 

3-6

 

 

$

88,701

 

 

$

84,814

 

Leasehold improvements

 

5-10

 

 

 

25,778

 

 

 

22,494

 

Operating equipment

 

3-8

 

 

 

59,864

 

 

 

58,521

 

Furniture and fixtures

 

 

8

 

 

 

8,115

 

 

 

9,262

 

 

 

 

 

 

 

 

182,458

 

 

 

175,091

 

Less - accumulated depreciation

 

 

 

 

 

 

(98,029

)

 

 

(93,278

)

Property and equipment, net

 

 

 

 

 

$

84,429

 

 

$

81,813

 

56

 

Goodwill. We do not have any intangible assets with indefinite lives other than goodwill.  A rollforward of goodwill in 2018 and 2019 is as follows (in thousands):

 

January 1, 2018 balance

 

$

210,080

 

Adjustments related to prior acquisitions

 

 

(60

)

Goodwill acquired during period

 

 

51,591

 

Effects of changes in foreign currency exchange rates

 

 

(5,795

)

December 31, 2018 balance

 

 

255,816

 

Adjustments related to prior acquisitions

 

 

640

 

Effects of changes in foreign currency exchange rates

 

 

2,708

 

December 31, 2019 balance

 

$

259,164

 

Other Intangible Assets. Our intangible assets subject to ongoing amortization consist of acquired client contracts and software.

Acquired Client Contracts.  As of December 31, 2019 and 2018, the carrying values of our acquired client contracts were as follows (in thousands):  

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Net

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Acquired client contracts

 

$

148,872

 

 

$

(93,767

)

 

$

55,105

 

 

$

148,148

 

 

$

(82,692

)

 

$

65,456

 

 

The aggregate amortization related to client contracts included in our operations for 2019, 2018, and 2017 was as follows (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Investments in client contracts (1)

 

$

-

 

 

$

-

 

 

$

7,402

 

Capitalized costs (2)

 

 

-

 

 

 

-

 

 

 

5,141

 

Acquired client contracts (3)

 

 

10,374

 

 

 

7,898

 

 

 

5,406

 

Total client contracts

 

$

10,374

 

 

$

7,898

 

 

$

17,949

 

(1)

Investments in client contracts consist principally of incentives provided to new or existing clients to convert their customer accounts to, or retain their customer’s accounts on, our customer care and billing systems.  As part of the adoption of ASC 606 in 2018, these were reclassified to client contract costs on our Balance Sheets.

(2)

Capitalized costs are related to client conversion/set-up services related to long-term cloud-based or managed services arrangements.  As part of the adoption of ASC 606, in 2018 these were reclassified to client contract costs on our Balance Sheets.

(3)

Acquired client contracts represent assets acquired in our prior business acquisitions.  Acquired client contracts are being amortized over their estimated useful lives ranging from two to twenty years based on the approximate pattern in which the economic benefits of the intangible assets are expected to be realized, with the amortization expense included as cost of revenues in our Income Statements.

 

The weighted-average remaining amortization period of the acquired client contract as of December 31, 2019 was approximately 109 months.  Based on the net carrying value of these acquired client contracts, the estimated amortization for each of the five succeeding fiscal years ending December 31 will be:  2020  – $9.5 million;  2021 – $6.8 million; 2022 – $6.5 million; 2023 – $5.5 million; and 2024 – $5.3 million.  

 

Software.  Software consists of: (i) software and similar intellectual property rights from various business combinations; and (ii) internal use software.  As of December 31, 2019 and 2018, the carrying values of our software assets were as follows (in thousands):

 

 

 

2019

 

 

2018

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Net

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Acquired software (4)

 

$

75,370

 

 

$

(68,157

)

 

$

7,213

 

 

$

75,156

 

 

$

(65,719

)

 

$

9,437

 

Internal use software (5)

 

 

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

 

57

 

The aggregate amortization related to software included in our operations for 2019, 2018, and 2017 was as follows (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Acquired software (4)

 

$

2,229

 

 

$

1,801

 

 

$

1,458

 

Internal use software (5)

 

 

10,641

 

 

 

9,517

 

 

 

7,845

 

Total software

 

$

12,870

 

 

$

11,318

 

 

$

9,303

 

 

(4)

Acquired software represents the software intangible assets acquired in our prior business acquisitions, which are being amortized over their estimated useful lives ranging from two to fifteen years.

(5)

Internal use software represents: (i) third-party software licenses; and (ii) the internal and external costs related to the implementation of the third-party software licenses.  Internal use software is amortized over its estimated useful life ranging from twelve months to ten years.

 

The weighted-average remaining amortization period of the software intangible assets as of December 31, 2019 was approximately 43 months.  Based on the net carrying value of these intangible assets, the estimated amortization for each of the five succeeding fiscal years ending December 31 will be:  2020– $12.0 million;  2021 – $8.4 million; 2022 – $6.1 million; 2023 – $3.8 million; and 2024 – $0.9 million.  

Client Contract Costs.  As of December 31, 2019 and 2018, the carrying values of our client contract cost assets, related to those contracts with a contractual term greater than one year, were as follows (in thousands):

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Net

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Client contract incentives (6)

 

$

4,626

 

 

$

(1,612

)

 

$

3,014

 

 

$

28,366

 

 

$

(20,833

)

 

$

7,533

 

Capitalized costs (7)

 

 

68,085

 

 

 

(26,482

)

 

 

41,603

 

 

 

44,469

 

 

 

(20,230

)

 

 

24,239

 

Capitalized commission fees (8)

 

 

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

 

 

The aggregate amortization related to our client contract costs included in our operations for 2019 and 2018 was as follows (in thousands):

 

 

 

2019

 

 

2018

 

Client contract incentives (6)

 

$

6,018

 

 

$

11,052

 

Capitalized costs (7)

 

 

12,625

 

 

 

10,304

 

Capitalized commission fees (8)

 

 

2,136

 

 

 

2,025

 

Total client contract costs

 

$

20,779

 

 

$

23,381

 

 

 

(6)

Client contract incentives consist principally of incentives provided to new or existing clients to convert their customer accounts to, or retain their customer’s account on, our outsourced solutions and are amortized ratably over the contract period to include renewal periods, if applicable, which as of December 31, 2019, have termination dates that range from 2023 to 2025.  The amortization of client contract incentives is reflected as a reduction in cloud and related solutions revenues.

 

(7)

Capitalized costs are related to client conversion/set-up activities and direct material costs to fulfill long-term cloud-based or managed services arrangements.  These costs are amortized over the contract period based on the transfer of goods or services to which the assets relate, which as of December 31, 2019, range from 2020 to 2028, and are included in cost of cloud and related solutions.

 

(8)

Capitalized commission fees are incremental commissions paid as a result of obtaining a customer contract.  These fees are amortized over the contract period based on the transfer of goods or services to which the assets relate, which as of December 31, 2019, range from 2020 to 2026, and are included in selling, general and administrative (“SG&A”) expenses.  Incremental commission fees incurred as a result of obtaining a customer contract are expensed when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less (a practical expedient allowed under ASC 606).  

 

  

 

 

58

 

5.

Debt

As of December 31, 2019 and 2018, our long-term debt was as follows (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

2018 Credit Agreement:

 

 

 

 

 

 

 

 

Term loan, due March 2023, interest at adjusted LIBOR plus 1.5% (combined rate of 3.44% at December 31, 2019 and 4.30% at December 31, 2018)

 

$

136,875

 

 

$

144,375

 

Less – deferred financing costs

 

 

(1,715

)

 

 

(2,281

)

2018 term loan, net of unamortized discounts

 

 

135,160

 

 

 

142,094

 

$200 million revolving loan facility, due March 2023, interest at adjusted LIBOR plus applicable margin

 

—

 

 

—

 

2016 Convertible Notes:

 

 

 

 

 

 

 

 

Convertible Notes – Senior convertible notes; due March 15, 2036; cash interest at 4.25%

 

 

230,000

 

 

 

230,000

 

Less – unamortized original issue discount

 

 

(6,004

)

 

 

(8,823

)

Less – deferred financing costs

 

 

(2,334

)

 

 

(3,445

)

2016 Convertible Notes, net of unamortized discounts

 

 

221,662

 

 

 

217,732

 

Total debt, net of unamortized discounts

 

 

356,822

 

 

 

359,826

 

Current portion of long-term debt, net of unamortized discounts

 

 

(10,313

)

 

 

(7,500

)

Long-term debt, net of unamortized discounts

 

$

346,509

 

 

$

352,326

 

2018 Credit Agreement

On March 5, 2018, we entered into a new $350 million credit agreement (the “2018 Credit Agreement”) with a consortium of banks to replace the amended and restated $350 million credit agreement entered into in February 2015, (the “2015 Credit Agreement”).  

The 2018 Credit Agreement provides borrowings in the form of:  (i) a $150 million aggregate principal five-year term loan (the “2018 Term Loan”); and (ii) a $200 million aggregate principal five-year revolving loan facility (the “2018 Revolver”).  With the $150 million proceeds from the 2018 Term Loan, we repaid the outstanding $120 million balance of the term loan under the 2015 Credit Agreement, resulting in a net increase of available cash by $30 million, a portion of which was used to pay certain fees and expenses in connection with the refinancing, and the remainder of which was used for general corporate purposes.  

The interest rates under the 2018 Credit Agreement are based upon our choice of an adjusted LIBOR rate plus an applicable margin of 1.50% - 2.50%, or an alternate base rate plus an applicable margin of 0.50% -1.50%, with the applicable margin, depending on our then-net secured total leverage ratio.  We will pay a commitment fee of 0.200% - 0.375% of the average daily unused amount of the 2018 Revolver, with the commitment fee rate also dependent upon our then-net secured total leverage ratio.  If the LIBOR rate is no longer available, then our interest rate under the Credit Agreement will be determined by the alternate base rate plus an applicable margin as discussed above.  The 2018 Credit Agreement includes mandatory repayments of the aggregate principal amount of the 2018 Term Loan (payable quarterly) for the first, second, third, fourth, and fifth years, with the remaining principal balance due at maturity.  The 2018 Credit Agreement has no prepayment penalties and requires mandatory repayments under certain circumstances, including:  (i) asset sales or casualty proceeds; and (ii) proceeds of debt or preferred stock issuances.    

The 2018 Credit Agreement contains customary affirmative covenants.  In addition, the 2018 Credit Agreement has customary negative covenants that places limits on our ability to:  (i) incur additional indebtedness; (ii) create liens on our property; (iii) make investments; (iv) enter into mergers and consolidations; (v) sell assets; (vi) declare dividends or repurchase shares; (vii) engage in certain transactions with affiliates; (viii) prepay certain indebtedness; and (ix) issue capital stock of subsidiaries.  We must also meet certain financial covenants to include:  (i) a maximum total leverage ratio; (ii) a maximum first-lien leverage ratio; and (iii) a minimum interest coverage ratio.  In conjunction with the 2018 Credit Agreement, we entered into a security agreement in favor of Bank of America N.A, as collateral agent (the “Security Agreement”).  Under the Security Agreement and 2018 Credit Agreement, certain of our domestic subsidiaries have guaranteed our obligations, and have pledged substantially all of our assets to secure the obligations under the 2018 Credit Agreement and such guarantees.  

During the year ended December 31, 2019, we made $7.5 million of principal repayments on our 2018 Credit Agreement. As of December 31, 2019, our interest rate on the 2018 Term Loan is 3.44% (adjusted LIBOR plus 1.50% per annum), effective through March 31, 2020, and our commitment fee on the 2018 Revolver is 0.20%.  As of December 31, 2019, we had no borrowings outstanding on our 2018 Revolver and had the entire $200 million available to us.  

 

59

 

In conjunction with the closing of the 2018 Credit Agreement, we incurred financing costs of $1.5 million.  When combined with the remaining deferred financing costs of the 2015 Credit Agreement, financing costs of $2.8 million have been deferred and are being amortized to interest expense using the effective interest method over the related term of the 2018 Credit Agreement. Additionally, as certain lenders from the 2015 Credit Agreement chose not to participate in the 2018 Credit Agreement syndication group, we wrote-off $0.8 million of unamortized debt issuance costs and recognized a loss on extinguishment of that debt.

2016 Convertible Notes

In March 2016, we completed an offering of $230 million of 4.25% senior convertible notes due March 15, 2036 (the “2016 Convertible Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.  The 2016 Convertible Notes are unsecured obligations and pay 4.25% annual cash interest, payable semiannually in arrears on March 15 and September 15 of each year.

The 2016 Convertible Notes will be convertible at the option of the note holders upon the satisfaction of specified conditions and during certain periods. During the period from, and including, December 15, 2021 to the close of business on the business day immediately preceding March 15, 2022 and on or after December 15, 2035, holders may convert all or any portion of their 2016 Convertible Notes at the conversion rate then in effect at any time regardless of these conditions. Under the terms of the 2016 Convertible Notes, we will adjust the conversion rate for any quarterly dividends exceeding $0.185 per share.  As of December 31, 2019, the conversion rate was 17.5843 shares of our common stock per $1,000 principal amount of the 2016 Convertible Notes, which is equivalent to an initial conversion price of $56.87 per share of our common stock.  As of December 31, 2019, none of the conversion features have been achieved, and thus, the 2016 Convertible Notes are not convertible by the holders.

We will settle conversions of the 2016 Convertible Notes by paying or delivering, as the case may be, cash, shares of our common stock, or a combination thereof, at our election. It is our current intent and policy to settle our conversion obligations as follows: (i) pay cash for 100% of the par value of the 2016 Convertible Notes that are converted; and (ii) to the extent the value of our conversion obligation exceeds the par value, we can satisfy the remaining conversion obligation in our common stock, cash or a combination thereof.  As of December 31, 2019, the value of our conversion obligation did not exceed the par value of the 2016 Convertible Notes.

Holders may require us to repurchase the 2016 Convertible Notes for cash on each of March 15, 2022, March 15, 2026, and March 15, 2031, or upon the occurrence of a fundamental change (as defined in the 2016 Convertible Notes Indenture (the “2016 Notes Indenture”)) in each case at a purchase price equal to the principal amount thereof plus accrued and unpaid interest.

We may not redeem the 2016 Convertible Notes prior to March 20, 2020.  On or after March 20, 2020, we may redeem for cash all or part of the 2016 Convertible Notes if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.  On or after March 15, 2022, we may redeem for cash all or part of the 2016 Convertible Notes regardless of the sales price condition described in the preceding sentence. In each case, the redemption price will equal the principal amount of the 2016 Convertible Notes to be redeemed, plus accrued and unpaid interest.

The 2016 Notes Indenture includes customary terms and covenants, including certain events of default after which the 2016 Convertible Notes may be due and payable immediately.  The 2016 Notes Indenture contains customary affirmative covenants, including compliance with terms of certain other indebtedness of the Company over a defined threshold amount.

The remaining original issue discount (“OID”) related to the 2016 Convertible Notes is being amortized to interest expense through December 15, 2021, the first date the 2016 Convertible Notes can be put back to us by the holders.

Estimated Maturities on Long-Term Debt

As of December 31, 2019, the maturities of our long-term debt, based upon: (i) the mandatory repayment schedule for the 2018 Term Loan; and (ii) the expected remaining life of the 2016 Convertible Notes, was as follows (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

 

60

 

Deferred Financing Costs

As of December 31, 2019, net deferred financing costs related to the 2018 Credit Agreement were $1.7 million, and are being amortized to interest expense over the related term of the 2018 Credit Agreement (through March 2023).  As of December 31, 2019, net deferred financing costs related to the 2016 Convertible Notes were $2.3 million, and are being amortized to interest expense through December 15, 2021, the first date the 2016 Convertible Notes can be put back to us by the holders.  The net deferred financing costs are presented as a reduction from the carrying amount of the corresponding debt liability in our Balance Sheets.  Interest expense for 2019, 2018, and 2017 includes amortization of deferred financing costs of $1.8 million, $1.9 million, and $2.4 million, respectively.  The weighted-average interest rate on our debt borrowings, including amortization of OID, amortization of deferred financing costs, and commitment fees on the revolving loan facility, for 2019, 2018, and 2017, was approximately 6%, 5%, and 5%, respectively. 

6.

Leases

We have operating leases for:  (i) real estate which include both office space and statement production and mailing facilities; (ii) our outsourced data center environment, as discussed further in Note 11; and (iii) operating equipment.  Our leases have remaining terms of up to eight years, some of which include options to extend the leases for up to an additional ten years.  For leases commencing prior to 2019, we used the noncancelable term to calculate the related right-of-use asset and corresponding lease liability.  The exercise of lease renewal options is at our sole discretion.  Additionally, certain of our leases include payments that are adjusted periodically for inflation.  

We have made an accounting policy election not to recognize on our balance sheet, leases with an initial term of twelve months or less, for any class of underlying asset.  We have also made an election for real estate leases beginning in 2019 and later, not to separate the lease and non-lease components, but rather account for the entire arrangement as a single lease component (a practical expedient allowed under ASC 842).  For our outsourced data center environment agreement, we have concluded that there are lease and non-lease components, and have allocated the consideration in the agreement on a relative stand-alone price basis.  Due to the significant assumptions and judgements required in accounting for leases (to include whether a contract contains a lease, the allocation of the consideration, and the determination of the discount rate), the judgements and estimates made could have a significant effect on the amount of assets and liabilities recognized.

We sublease certain of our leased real estate to third parties.  These subleases have remaining lease terms of up to four years and certain subleases have renewal terms that can extend the lease for up to an additional two years.  

The components of lease expense were as follows (in thousands):

 

 

 

Year Ended

 

 

 

 

December 31, 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

 

 

 

Other information related to leases was as follows (in thousands, except term and discount rate):

 

 

 

Year Ended

 

 

 

December 31, 2019

 

Supplemental Cash Flows Information:

 

 

 

 

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

24,006

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

33,782

 

Weighted-average remaining lease term - operating leases

 

59 months

 

Weighted-average discount rate - operating leases

 

 

4.32

%

 

61

 

Future minimum lease payments under non-cancelable leases as of December 31, 2019 were as follows (in thousands):

 

2020

 

$

25,976

 

2021

 

 

25,134

 

2022

 

 

20,251

 

2023

 

 

15,097

 

2024

 

 

13,848

 

Thereafter

 

 

12,639

 

Total future minimum lease payments (1)

 

 

112,945

 

Less:  Interest (2)

 

 

(11,567

)

Total

 

$

101,378

 

 

 

 

 

 

Current operating lease liabilities

 

$

22,442

 

Non-current operating lease liabilities

 

 

78,936

 

Total

 

$

101,378

 

 

 

(1)

For leases commencing prior to 2019, minimum lease payments exclude payments for real estate taxes and non-lease components.  

 

(2)

We used our functional currency adjusted incremental borrowing rate for the discount rate for the leases at adoption date and will use the same approach for all leases commencing thereafter.

As of December 31, 2019, we have an operating lease for office space that has not yet commenced of approximately $23 million.  This operating lease will commence during 2020 with a lease term through 2031.  Additionally, prior to December 31, 2019 we entered into an agreement to upgrade the processors at our outsourced data center environment in 2020.  As a result, when we have access and control of the new asset, we will account for the termination of the original agreement by writing off the remaining right-of-use asset and lease liability, and recording a new right-of-use asset and lease liability.  At this time, we expect the net impact of these entries will increase the related right-of-use asset and lease liability by approximately $12 million.

Future minimum lease payments under non-cancelable leases as of December 31, 2018 were as follows:  2019 – $16.6 million; 2020 – $14.1 million; 2021 – $13.1 million; 2022 – $11.5 million; 2023 – $9.6 million; and thereafter – $14.7 million.  Total lease expense for 2018 and 2017 was $19.0 million and $16.4 million, respectively.

7.

Acquisitions

Business Ink, Co.  On February 28, 2018, we acquired Business Ink for a purchase price of approximately $70 million.  Business Ink was a central communications provider of outsourced, customized business communications services to the telecommunications, healthcare, financial services, utilities and government sectors across statements, email, mobile messaging and more.  The acquisition extended the scale of our operations and platform capabilities, expanded our customer base into new verticals, and further solidified our customer communications footprint.     

Forte Payment Systems, Inc.  On October 1, 2018, we acquired Forte for a purchase price of approximately $93 million (approximately $85 million, excluding cash acquired), of which approximately $13 million of the purchase price was initially held back subject to certain tax filings, and then paid in July 2019.  Forte was a leading provider of advanced payment solutions.  The acquisition accelerated our ability to offer a comprehensive suite of next generation payment solutions that enables service providers to provide a differentiated customer experience while also strengthening our position in the revenue management and payment sector and allowed us to grow our footprint into new verticals.  The purchase agreement also includes provisions for $18.8 million of potential future earn-out payments over a four-year measurement period.  The earn-out payments are tied to performance-based goals and a defined service period by the eligible recipients and is being accounted for as post-acquisition compensation.  As of December 31, 2019, we have accrued $2.5 million related to the potential earn-out payments. There were no material changes to Forte’s purchase accounting estimated fair values of assets acquired and liabilities assumed during 2019.

Subsequent Event – Tekzenit, Inc.  In January 2020, we acquired certain assets of Tekzenit, Inc. (“Tekzenit”) for a purchase price of approximately $10 million.  This acquisition will allow us to accelerate our go-to-market approach serving clients who are focused on improving their customers’ experience while transforming their business.  The purchase agreement includes provisions for additional purchase price payments in the form of earn-out and qualified sales payments for up to $10 million over a three-year measurement period upon meeting certain financial and sales criteria.  The results of Tekzenit will be included in our results of operations for the period subsequent to the acquisition date.

 

62

 

8.

Restructuring and Reorganization Charges

Restructuring and reorganization charges are expenses that generally result from cost reduction initiatives and/or significant changes to our business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, impairment of acquired intangible assets, and fundamental reorganizations impacting operational focus and direction.  The following are the key restructuring and reorganizational activities we incurred over the last three years that have impacted our results from operations:     

During 2019 we implemented the following restructuring activities:

 

•

We reduced our workforce by approximately 70 employees, primarily in North America, as a result of organizational changes and efficiencies.  As a result, we incurred restructuring charges related to involuntary terminations of $2.5 million.

During 2018 we implemented the following restructuring activities:

 

•

We reduced our workforce by approximately 170 employees as a result of organizational changes made to pursue global opportunities and efficiencies.  As a result, we incurred restructuring charges related to involuntary terminations of $6.2 million.

 

•

We closed one of our print facilities.  As a result, we incurred restructuring charges related to involuntary terminations and impairment of assets of $2.7 million.

 

•

We reversed a liability related to a previous disposition of a business resulting in a reduction in restructuring charges of $2.3 million.

During 2017 we implemented the following restructuring activities:

 

•

We reduced our workforce by approximately 60 employees, primarily in North America, as a result of organizational changes made to pursue global opportunities and efficiencies.  As a result, we incurred restructuring charges related to involuntary terminations of $3.7 million.

 

•

We impaired a long-term receivable related to the disposition of a business in 2013 resulting in additional restructuring charges of $2.9 million.

 

•

We abandoned space at several locations to improve our space utilization, resulting in restructuring charges of $2.2 million.

The activities discussed above resulted in total charges for 2019, 2018, and 2017 of $4.8 million, $8.7 million, and $8.8 million, respectively, which have been reflected as a separate line item in our Income Statements.

The activity in the business restructuring and reorganization reserves during 2017, 2018, and 2019 is as follows (in thousands):  

 

 

 

 

 

 

 

 

 

 

 

Disposition of

 

 

 

 

 

 

 

 

 

 

 

Termination

 

 

Facilities

 

 

Business

 

 

 

 

 

 

 

 

 

 

 

Benefits

 

 

Abandonment

 

 

Operations

 

 

Other

 

 

Total

 

January 1, 2017, balance

 

$

2,414

 

 

$

1,332

 

 

$

—

 

 

$

—

 

 

$

3,746

 

Charged to expense during period

 

 

3,693

 

 

 

2,236

 

 

 

2,904

 

 

 

(37

)

 

 

8,796

 

Cash payments

 

 

(4,345

)

 

 

(1,329

)

 

—

 

 

—

 

 

 

(5,674

)

Adjustment for asset impairment

 

—

 

 

 

(231

)

 

 

(2,904

)

 

—

 

 

 

(3,135

)

Other

 

 

(646

)

 

 

1,024

 

 

—

 

 

 

37

 

 

 

415

 

December 31, 2017, balance

 

 

1,116

 

 

 

3,032

 

 

—

 

 

—

 

 

 

4,148

 

Charged to expense during period

 

 

6,555

 

 

 

1,981

 

 

 

(2,330

)

 

 

2,455

 

 

 

8,661

 

Cash payments

 

 

(6,744

)

 

 

(2,625

)

 

—

 

 

—

 

 

 

(9,369

)

Adjustment for asset impairment

 

—

 

 

—

 

 

—

 

 

 

(1,851

)

 

 

(1,851

)

Other

 

 

475

 

 

 

546

 

 

 

2,330

 

 

 

(604

)

 

 

2,747

 

December 31, 2018, balance

 

 

1,402

 

 

 

2,934

 

 

 

—

 

 

 

—

 

 

 

4,336

 

Charged to expense during period

 

 

2,499

 

 

—

 

 

—

 

 

 

2,335

 

 

 

4,834

 

Cash payments

 

 

(3,551

)

 

—

 

 

—

 

 

 

(1,987

)

 

 

(5,538

)

Adjustment for asset impairment

 

—

 

 

—

 

 

—

 

 

 

(438

)

 

 

(438

)

Adjustment for adoption of ASC 842 (1)

 

—

 

 

 

(2,934

)

 

—

 

 

—

 

 

 

(2,934

)

Other

 

 

472

 

 

—

 

 

—

 

 

 

90

 

 

 

562

 

December 31, 2019, balance

 

$

822

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

822

 

 

(1)

With the adoption of ASC 842 on January 1, 2019, the facilities abandonment liabilities of $2.9 million were offset against our initial lease right-of-use assets on our Balance Sheet (see Notes 2 and 6 for further discussion of the adoption of ASC 842).    

63

 

As of December 31, 2019, $0.8 million of the business restructuring and reorganization reserves were included in current liabilities.   

 

9.

Income Taxes

Income Tax Provision/(Benefit).  The components of net income before income taxes are as follows (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Domestic

 

$

93,510

 

 

$

80,234

 

 

$

89,095

 

Foreign

 

 

12,213

 

 

 

6,753

 

 

 

(1,385

)

Total

 

$

105,723

 

 

$

86,987

 

 

$

87,710

 

The income tax provision consists of the following (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

 

 

 

 

23,045

 

 

 

15,944

 

 

 

19,234

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

(1,943

)

 

 

4,584

 

 

 

5,582

 

State

 

 

624

 

 

 

(619

)

 

 

937

 

Foreign

 

 

1,227

 

 

 

948

 

 

 

593

 

 

 

 

(92

)

 

 

4,913

 

 

 

7,112

 

Total income tax provision

 

$

22,953

 

 

$

20,857

 

 

$

26,346

 

 

The difference between our income tax provision computed at the statutory Federal income tax rate and our financial statement income tax is summarized as follows (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Provision at Federal rate of 21% for 2019 and 2018, 35% for 2017)

 

$

22,202

 

 

$

18,267

 

 

$

30,699

 

State income taxes, net of Federal impact

 

 

2,792

 

 

 

2,985

 

 

 

1,850

 

Research and experimentation credits

 

 

(3,314

)

 

 

(4,040

)

 

 

(2,853

)

Stock award vesting

 

 

(3,661

)

 

 

(1,513

)

 

 

(7,882

)

Tax uncertainties

 

 

(56

)

 

 

(122

)

 

 

166

 

Section 199 manufacturing deduction

 

 

—

 

 

 

168

 

 

 

(962

)

Section 162(m) compensation limitation

 

 

978

 

 

 

951

 

 

 

273

 

Foreign rate differential

 

 

930

 

 

 

1,238

 

 

 

162

 

Valuation allowance for deferred tax assets

 

 

(495

)

 

 

(177

)

 

 

2,351

 

Other impact of foreign operations

 

 

2,635

 

 

 

2,755

 

 

 

3,933

 

Statutory rate change

 

 

(10

)

 

 

(87

)

 

 

(2,210

)

Other

 

 

952

 

 

 

432

 

 

 

819

 

Total income tax provision

 

$

22,953

 

 

$

20,857

 

 

$

26,346

 

We have undistributed earnings of approximately $49 million from certain foreign subsidiaries. We intend to indefinitely reinvest these foreign earnings; therefore, a provision has not been made for foreign withholding taxes that might be payable upon remittance of such earnings. Determination of the amount of unrecognized deferred tax liability on unremitted foreign earnings is not practicable because of the complexities of the hypothetical calculation.  The Tax Cuts and Jobs Act (the “Tax Reform Act”), see further discussion below, effectively eliminates the U.S. tax consequences of unremitted earnings at December 31, 2017 due to inclusion of a deemed repatriation tax on such earnings. In addition, the Tax Reform Act establishes a participation exemption from the taxation of future dividends received from 10% or more owned foreign subsidiaries.

64

 

Deferred Income Taxes. Net deferred income tax assets as of December 31, 2019 and 2018 are as follows (in thousands):

 

 

 

2019

 

 

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

 

The components of our net deferred income tax assets (liabilities) as of December 31, 2019 and 2018 are as follows (in thousands):

 

 

 

2019

 

 

2018

 

Net deferred income tax assets:

 

 

 

 

 

 

 

 

Accrued expenses and reserves

 

$

8,810

 

 

$

7,180

 

Stock-based compensation

 

 

4,844

 

 

 

3,695

 

Software

 

 

(1,556

)

 

 

(3,001

)

Client contracts and related intangibles

 

 

(7,771

)

 

 

(3,741

)

Goodwill

 

 

(7,431

)

 

 

(6,635

)

Net operating loss carryforwards

 

 

25,989

 

 

 

24,857

 

Property and equipment

 

 

(4,410

)

 

 

(8,315

)

Convertible debt securities

 

 

—

 

 

 

19

 

Deferred revenue

 

 

1,307

 

 

 

2,606

 

State Taxes

 

 

1,387

 

 

 

4,520

 

Contingent payments

 

 

(1,710

)

 

 

(2,333

)

Foreign exchange gain/loss

 

 

1,340

 

 

 

2,048

 

R&D credit

 

 

207

 

 

 

1,413

 

Operating lease right-of-use assets and lease liabilities

 

 

1,611

 

 

 

—

 

Other

 

 

315

 

 

 

383

 

Total deferred income tax assets

 

 

22,932

 

 

 

22,696

 

Less: valuation allowance

 

 

(19,916

)

 

 

(19,814

)

Net deferred income tax assets

 

$

3,016

 

 

$

2,882

 

We regularly assess the likelihood of the future realization of our deferred income tax assets. To the extent we believe that it is more likely than not that a deferred income tax asset will not be realized, a valuation allowance is established.  As of December 31, 2019, we believe we will generate sufficient taxable income in the future such that we will realize 100% of the benefit of our U.S. Federal deferred income tax assets, thus no valuation allowance has been established.  As of December 31, 2019, we have deferred income tax assets net of federal benefit related to state and foreign income tax jurisdictions of $3.8 million and $26.8 million, respectively, and have established valuation allowances against those deferred income tax assets of $2.4 million and $17.5 million, respectively.

As of December 31, 2019 and 2018, we have an acquired U.S. Federal net operating loss (“NOL”) carryforward of approximately $29 million and $34 million, respectively, which will begin to expire in 2024 and can be utilized through 2030.  The acquired U.S. Federal NOL carryforward is attributable to the pre-acquisition periods of acquired subsidiaries. The annual utilization of this U.S. Federal NOL carryforward is limited pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.  In addition, as of December 31, 2019 and 2018, we have: (i) state NOL carryforwards of approximately $51 million and $49 million, respectively, which will expire beginning in 2020 and end in 2044; and (ii) foreign subsidiary NOL carryforwards of approximately $96 million and $97 million, respectively, which will expire beginning in 2020, with a portion of the losses available over an indefinite period of time.

Our 2004 Convertible Debt Securities, which we fully extinguished in 2011, were subject to special U.S. Treasury regulations governing contingent payment debt instruments. These regulations allowed us to take a tax deduction for interest expense on our U.S. Federal income tax return at a constant rate of 9.09% (subject to certain adjustments), compounded semi-annually, which represented the estimated yield on comparable non-contingent, non-convertible, fixed-rate debt instruments with terms and conditions otherwise similar to the 2004 Convertible Debt Securities.  This interest expense tax deduction was greater than the interest expense reflected in the accompanying Income Statements, thus creating a deferred income tax liability.  The extinguishment of the 2004 Convertible Debt Securities resulted in: (i) the holders of the 2004 Convertible Debt Securities not having the ability to achieve the 9.09% target yield, and (ii) a requirement for us to pay an amount equal to the cumulative deferred income tax liability to the U.S. tax authorities (without interest or penalties).  During 2011, we paid cash of approximately $6 million related to the deferred income tax liabilities associated with the 2004 Convertible Debt Securities repurchased in 2011. In 2018 and 2017 we paid cash of $3.4 million, and $5.6 million, respectively, related to the deferred income tax liabilities associated with the 2004 Convertible Debt Securities repurchased in 2009 and 2010.

65

 

Accounting for Uncertainty in Income Taxes. We are required to estimate our income tax liability in each jurisdiction in which we operate, including U.S. Federal, state and foreign income tax jurisdictions. Various judgments and estimates are required in evaluating our tax positions and determining our provisions for income taxes.  During the ordinary course of business, there are certain transactions and calculations for which the ultimate income tax determination may be uncertain.  In addition, we may be subject to examination of our income tax returns by various tax authorities, which could result in adverse outcomes.  For these reasons, we establish a liability associated with unrecognized tax benefits based on estimates of whether additional taxes and interest may be due.  This liability is adjusted based upon changing facts and circumstances, such as the closing of a tax audit, the expiration of a statute of limitations or the refinement of an estimate.

A reconciliation of the beginning and ending balances of our liability for unrecognized tax benefits is as follows (in thousands):

 

 

 

2019

 

 

2018

 

 

2017

 

Balance, beginning of year

 

$

1,668

 

 

$

1,915

 

 

$

1,891

 

Additions based on tax positions related to current year

 

 

—

 

 

 

—

 

 

 

136

 

Audit Settlements

 

 

—

 

 

 

—

 

 

 

(183

)

Lapse of statute of limitations

 

 

(420

)

 

 

(226

)

 

 

(174

)

Additions for tax positions of prior years

 

 

322

 

 

 

85

 

 

 

257

 

Reductions for tax positions of prior years

 

 

(30

)

 

 

(106

)

 

 

(12

)

Balance, end of year

 

$

1,540

 

 

$

1,668

 

 

$

1,915

 

We recognize interest and penalty expense associated with our liability for unrecognized tax benefits as a component of income tax expense in our Income Statements.  In addition to the $1.5 million, $1.7 million, and $1.9 million of liability for unrecognized tax benefits as of December 31, 2019, 2018, and 2017, we had $0.6 million, $0.6 million, and $0.5 million, respectively, of income tax-related accrued interest, net of any federal benefit of deduction.  If recognized, the $1.5 million of unrecognized tax benefits as of December 31, 2019, would favorably impact our effective tax rate in future periods.

We file income tax returns in the U.S. Federal jurisdiction, various U.S. state and local jurisdictions, and many foreign jurisdictions.  The U.S., U.K., and Australia are the primary taxing jurisdictions in which we operate.  The years open for audit vary depending on the taxing jurisdiction. We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $0.3 million over the next twelve months due to completion of audits and the expiration of statute of limitations.

We adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718) in the first quarter of 2017.  This ASU requires a change in the recognition of excess tax benefits and tax deficiencies, related to share-based payment transactions, which were recorded in equity, and now are recorded discrete to the quarter incurred as a component of income tax expense in the income statement.  The adoption of this ASU provided an approximately $0.4 million and $1 million benefit to the income tax provision for 2019 and 2018, respectively.

U.S. Tax Cuts and Job Act.  On December 22, 2017, the Tax Reform Act was passed into legislation. The Tax Reform Act amends the Internal Revenue Code, reducing the corporate income tax rate, changing or eliminating certain income tax deductions and credits and provides sweeping change to how U.S. companies are taxed on their international operations. The Tax Reform Act is generally effective for tax years beginning after December 31, 2017; however, certain provisions of the Tax Reform Act have effective dates beginning in 2017.

The Tax Reform Act reduced the U.S. maximum rate of income taxation from 35% to 21% applicable to taxable years beginning after December 31, 2017.  In the fourth quarter of 2017, we recorded an estimated benefit of $2.3 million from revaluation of our U.S.-based net deferred income tax liabilities in accordance with ASC Topic 740.  In the fourth quarter of 2017 we recorded provisional amounts for the tax effects of the tax law change for which the accounting was not complete, and for which a reasonable estimate could be determined. In the fourth quarter of 2018 we completed the accounting for the tax effects of the tax law change with no additional adjustments recorded.

10.

Employee Retirement Benefit Plans

Defined Contribution-Type Plans.  We sponsor a defined contribution plan covering substantially all of our U.S.-based employees. Participants may contribute up to 100% of their eligible pay, subject to certain limitations, as pretax, salary deferral contributions. We make certain matching, and at our discretion, non-elective employer contributions to the plan.  All contributions are subject to certain IRS limitations.  The expense related to these contributions for 2019, 2018, and 2017 was $11.3 million, $12.8 million, and $10.4 million, respectively.  We also have defined contribution-type plans for certain of our non-U.S.-based employees. The total contributions made to these plans in 2019, 2018, and 2017 were $4.1 million, $4.5 million, and $4.5 million, respectively.

 

66

 

11.

Commitments, Guarantees and Contingencies

Service Agreements.  We have an agreement with Ensono, Inc. (“Ensono”) to provide us outsourced computing services through September 30, 2025.  We outsource the computer processing and related services required for the operation of our outsourced ACP solutions.  Our ACP proprietary software and other software applications are run in an outsourced data center environment in order to obtain the necessary computer processing capacity and other computer support services without us having to make the substantial capital and infrastructure investments that would be necessary for us to provide these services internally.  Our clients are connected to the outsourced data center environment through a combination of private and commercially-provided networks.  Our ACP cloud-based solutions are generally considered to be mission critical customer management systems by our clients. As a result, we are highly dependent upon Ensono for system availability, security, and response time.

Warranties.  We generally warrant that our solutions and related offerings will conform to published specifications, or to specifications provided in an individual client arrangement, as applicable.  The typical warranty period is 90 days from delivery of the solution or offering.  For certain service offerings we provide a limited warranty for the duration of the services provided.  We generally warrant that services will be performed in a professional and workmanlike manner.  The typical remedy for breach of warranty is to correct or replace any defective deliverable, and if not possible or practical, we will accept the return of the defective deliverable and refund the amount paid under the client arrangement that is allocable to the defective deliverable.  Our contracts also generally contain limitation of damages provisions in an effort to reduce our exposure to monetary damages arising from breach of warranty claims.  Historically, we have incurred minimal warranty costs, and as a result, do not maintain a warranty reserve.

Solution and Services Indemnifications.  Our arrangements with our clients generally include an indemnification provision that will indemnify and defend a client in actions brought against the client that claim our products and/or services infringe upon a copyright, trade secret, or valid patent.  Historically, we have not incurred any significant costs related to such indemnification claims, and as a result, do not maintain a reserve for such exposure.

Claims for Company Non-performance.  Our arrangements with our clients typically cap our liability for breach to a specified amount of the direct damages incurred by the client resulting from the breach.  From time-to-time, these arrangements may also include provisions for possible liquidated damages or other financial remedies for our non-performance, or in the case of certain of our outsourced customer care and billing solutions, provisions for damages related to service level performance requirements.  The service level performance requirements typically relate to system availability and timeliness of service delivery.  As of December 31, 2019, we believe we have adequate reserves, based on our historical experience, to cover any reasonably anticipated exposure as a result of our nonperformance for any past or current arrangements with our clients.

Indemnifications Related to Officers and the Board of Directors.  We have agreed to indemnify members of our Board of Directors (the “Board”) and certain of our officers if they are named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity.  We maintain directors’ and officers’ (“D&O”) insurance coverage to protect against such losses.  We have not historically incurred any losses related to these types of indemnifications, and are not aware of any pending or threatened actions or claims against any officer or member of our Board.  As a result, we have not recorded any liabilities related to such indemnifications as of December 31, 2019.  In addition, as a result of the insurance policy coverage, we believe these indemnification agreements are not significant to our results of operations.   

Legal Proceedings.  From time-to-time, we are involved in litigation relating to claims arising out of our operations in the normal course of business.  

12.

Stockholders’ Equity

Stock Repurchase Program.  We currently have a stock repurchase program, approved by our Board, authorizing us to repurchase shares of our common stock from time-to-time as market and business conditions warrant (the “Stock Repurchase Program”).  During 2019, 2018, and 2017, we repurchased 576,000 shares of our common stock for $25.5 million (weighted–average price of $44.17 per share), 704,000 shares of our common stock for $27.6 million (weighted-average price of $39.23 per share), and 500,000 shares of our common stock for $20.5 million (weighted-average price of $41.10 per share), respectively, under a Securities and Exchange Commission (“SEC”) Rule 10b5-1 Plan.

As of December 31, 2019, the remaining number of shares available for repurchase under the Stock Repurchase Program totaled 5.0 million shares.  

Stock Repurchases for Tax Withholdings.  In addition to the above mentioned stock repurchases, during 2019, 2018, and 2017, we repurchased and then cancelled approximately 117,000 shares, 159,000 shares, and 249,000 shares for $5.1 million, $7.4 million, and $10.1 million, respectively, of common stock from our employees in connection with minimum tax withholding requirements resulting from the vesting of restricted stock under our stock incentive plans.

67

 

Cash Dividend.  During 2019, 2018, and 2017 our Board approved total cash dividends of $0.89 per share, $0.84 per share, and $0.79 per share of common stock, totaling $29.4 million, $28.1 million, and $26.8 million, respectively.

Warrants.  In 2014, in conjunction with the execution of an amendment to our current agreement with Comcast, we issued stock warrants (the “Warrant Agreement”) for the right to purchase up to approximately 2.9 million shares of our common stock (the “Stock Warrants”) as an additional incentive for Comcast to convert new customer accounts onto our ACP cloud solution.   The Stock Warrants have a 10-year term and an exercise price of $26.68 per warrant.  

Of the total Stock Warrants, 1.9 million Stock Warrants relate to Comcast’s existing residential business and vested as follows:

 

•

The first 25% of these Stock Warrants (approximately 0.5 million) vested upon the successful conversion of the first 0.5 million customer accounts, which occurred during the fourth quarter of 2014.

 

•

The next 25% of these Stock Warrants had a time-based vesting provision and vested in January 2015.

 

•

The next 25% of these Stock Warrants vested after a cumulative total of 5.5 million customer accounts were converted onto ACP, which occurred in the fourth quarter of 2016.

 

•

Of the last 25% of these Stock Warrants, 0.4 million vested upon completion of the conversion of all of Comcast’s approximately eleven million residential customer accounts onto ACP in the fourth quarter of 2017.  

The remaining 1.0 million Stock Warrants relate to additional residential accounts that Comcast may acquire and convert onto ACP in the future and vest proportionately with acquired customer accounts converted onto ACP from other providers’ billing platforms, with full vesting based on a target of five million newly converted customer accounts.

Fifty percent of the unvested Stock Warrants become fully vested upon a fundamental change (including a change in control) of the Company, as defined, proportionally reducing the number of Stock Warrants eligible for vesting based on future performance conditions.

Once vested, Comcast may exercise the Stock Warrants and elect either physical delivery of common shares or net share settlement (cashless exercise).  Alternatively, the exercise of the Stock Warrants may be settled with cash based solely on our approval, or if Comcast were to beneficially own or control in excess of 19.99% of the common stock or voting of the Company.   

Upon vesting, the Stock Warrants were recorded as a client contract cost asset, as determined using the Black-Scholes option-pricing model, with the corresponding offset to stockholders’ equity.  The client contract cost asset related to the Stock Warrants was amortized as a reduction in cloud and related solutions revenues over the original term of the Comcast amended agreement.  As of June 30, 2019, the client contract cost asset related to these Stock Warrants was fully amortized.  As of December 31, 2018, the client contact cost asset and accumulated amortization related to these Stock Warrants was $25.1 million and $19.8 million, respectively.

The remaining unvested Stock Warrants will be accounted for as a client contract cost asset once the performance conditions necessary for vesting are considered probable.  

In January 2017, Comcast exercised 1.4 million vested Stock Warrants, which we net share settled under the provisions of the Warrant Agreement.  In December 2019, Comcast exercised their remaining 0.4 million of vested Stock Warrants, which we net cash settled under the provision of the Warrant Agreement.  The fair value of the Stock Warrants were $24.6 million (weighted-average price of $56.12 per share), resulting in a net cash settlement of $12.9 million.  The difference between the net cash settlement and the $9.1 million carrying amount of the Stock Warrants was recorded as an adjustment to additional paid-in capital.  As of December 31, 2019, 1.0 million Stock Warrants remain issued, none of which were vested.

13.

Equity Compensation Plans

Stock Incentive Plan.  In May 2018, our stockholders approved an increase of 2.7 million shares authorized for issuances under the Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”), from 18.7 million shares to 21.4 million shares.  Shares reserved under the 2005 Plan can be granted to officers and other key employees of our company and its subsidiaries and to non-employee directors of our company in the form of stock options, stock appreciation rights, performance unit awards, restricted stock awards, or stock bonus awards.  Shares granted under the 2005 Plan in the form of a performance unit award, restricted stock award, or stock bonus award are counted toward the aggregate number of shares of common stock available for issuance under the 2005 Plan as two shares for every one share granted or issued in payment of such award.  As of December 31, 2019, 3.4 million shares were available for issuance, with 3.1 million shares available for grant.     

68

 

Restricted Stock.  We generally issue new shares (versus treasury shares) to fulfill restricted stock award grants. Restricted stock awards are granted at no cost to the recipient.  Historically, our restricted stock awards have vested annually primarily over three or four years with no restrictions other than the passage of time (i.e., the shares are released upon calendar vesting with no further restrictions) (or “Time-Based Awards”).  Unvested Time-Based Awards are typically forfeited and cancelled upon termination of employment with our company. Certain Time-Based Awards become fully vested (i.e., vesting accelerates) upon a change in control, as defined, and the subsequent involuntary termination of employment.  The fair value of the Time-Based Awards (determined by using the closing market price of our common stock on the grant date) is charged to expense on a straight-line basis over the requisite service period for the entire award.

We also issue restricted stock shares to key members of management that vest upon meeting either pre-established financial performance objectives or total shareholder return objectives (“Performance-Based Awards”).  The structure of the performance goals for the Performance-Based Awards has been approved by our stockholders. The Performance-Based Awards become fully vested (i.e., vesting accelerates) upon a change in control, as defined, and the subsequent involuntary termination of employment.  The fair value of the Performance-Based Awards (determined by using the closing market price of our common stock on the grant date) is charged to expense on a straight-line basis over the requisite service period, taking into consideration the probability of vesting, for each separately vesting portion of the award as if the award is, in-substance, multiple awards.

A summary of our unvested restricted stock activity during 2019 is as follows (shares in thousands):

 

 

Shares

 

 

Weighted-

Average

Grant

Date 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 weighted-average grant date fair value per share of restricted stock shares granted during 2019, 2018, and 2017 was $41.69, $45.57, and $39.79, respectively.  The total market value of restricted stock shares vesting during 2019, 2018, and 2017 was $17.0 million, $22.7 million, and $29.5 million, respectively.

1996 Employee Stock Purchase Plan

As of December 31, 2019, we have an employee stock purchase plan whereby 1.7 million shares of our common stock have been reserved for sale to our U.S. employees through payroll deductions.  The price for shares purchased under the plan is 85% of market value on the last day of the purchase period.  Purchases are made at the end of each month. During 2019, 2018, and 2017, 54,949 shares, 68,902 shares, and 50,674 shares, respectively, were purchased under the plan for $2.3 million ($30.76 to $48.99 per share), $2.4 million ($27.00 to $39.68 per share), and $1.8 million ($31.88 to $41.14 per share), respectively.  As of December 31, 2019, 222,260 shares remain eligible for purchase under the plan.

Stock-Based Compensation Expense

We recorded stock-based compensation expense of $19.9 million, $19.4 million, and $21.0 million, respectively, for 2019, 2018, and 2017.  As of December 31, 2019, there was $28.6 million of total compensation cost related to unvested awards not yet recognized. That cost, excluding the impact of forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.

We recorded a deferred income tax benefit related to stock-based compensation expense during 2019, 2018, and 2017, of $4.3 million, $4.4 million, and $7.1 million, respectively.  The actual income tax benefit realized for the tax deductions from the vesting of restricted stock for 2019, 2018, and 2017, totaled $3.9 million, $5.3 million, and $11.0 million, respectively.

 

69

 

14.

Unaudited Quarterly Financial Data

 

 

 

Quarter Ended

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

 

 

(in thousands, except per share amounts)

 

2019 (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (2)

 

 

32,093

 

 

 

30,338

 

 

 

33,420

 

 

 

30,258

 

Income before income taxes (2)

 

 

25,851

 

 

 

26,837

 

 

 

28,821

 

 

 

24,214

 

Income tax provision (3)

 

 

(6,600

)

 

 

(7,458

)

 

 

(7,262

)

 

 

(1,633

)

Net income (2)(3)

 

 

19,251

 

 

 

19,379

 

 

 

21,559

 

 

 

22,581

 

Basic earnings per common share (2)(3)

 

$

0.60

 

 

$

0.60

 

 

$

0.67

 

 

$

0.71

 

Diluted earnings per common share (2)(3)

 

 

0.59

 

 

 

0.60

 

 

 

0.66

 

 

 

0.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018 (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

201,704

 

 

$

213,033

 

 

$

213,055

 

 

$

247,267

 

Total cost of revenues (exclusive of depreciation)

 

 

101,096

 

 

 

109,492

 

 

 

109,052

 

 

 

130,180

 

Operating income (2)

 

 

25,767

 

 

 

24,087

 

 

 

25,653

 

 

 

29,425

 

Income before income taxes (2)

 

 

20,204

 

 

 

20,724

 

 

 

20,492

 

 

 

25,567

 

Income tax provision (3)

 

 

(6,190

)

 

 

(5,607

)

 

 

(4,391

)

 

 

(4,669

)

Net income (2)(3)

 

 

14,014

 

 

 

15,117

 

 

 

16,101

 

 

 

20,898

 

Basic earnings per common share (2)(3)

 

$

0.43

 

 

$

0.46

 

 

$

0.50

 

 

$

0.65

 

Diluted earnings per common share (2)(3)

 

 

0.42

 

 

 

0.46

 

 

 

0.49

 

 

 

0.64

 

 

 

(1)

During 2018, we completed the Business Ink and Forte acquisitions in February and October, respectively (see Note 7), and as a result, their results of operations are included in our 2019 and 2018 results above.  Additionally, in conjunction with these acquisitions, during the first, third, and fourth quarters of 2018, we incurred transaction-related costs of $2.4 million, $0.2 million, and $2.3 million, respectively, or $0.05, $0.01, and $0.06 per diluted share and in the first quarter of 2019, we incurred transaction related costs of $1.3 million, or $0.03 per diluted share.

 

(2)

During the second, third, and fourth quarters of 2019 we incurred restructuring and reorganization charges of $1.8 million, $1.3 million, and $1.6 million, respectively, or $0.04, $0.03, and $0.04 per diluted share.

 

During the first, second, third, and fourth quarters of 2018 we incurred restructuring and reorganization charges of $0.9 million, $3.3 million, $2.8 million, and $1.6 million, respectively, or $0.02, $0.07, $0.07, and $0.04 per diluted share.

See Note 8 for further discussion of our restructuring and reorganization activities.

 

(3)

Fluctuations in our effective income tax rate between quarters generally relates to the accounting for discrete income tax items in any given quarter, and revisions of estimates for certain income tax components during the year.

For 2019:  Our effective income tax rates for the first, second, third, and fourth quarters were 26%, 28%, 25%, and 7%, respectively.  The fourth quarter effective income tax rate was positively impacted by an approximately $4 million net income tax benefit we received as a result of Comcast’s exercise of their remaining 0.4 million of vested common stock warrants (see Note 12).

For 2018:  Our effective income tax rates for the first, second, third, and fourth quarters were 31%, 27%, 21%, and 18%, respectively.  The 2018 effective income tax rate reflects the impact of the Tax Reform Act (see Note 9).  Additionally, the decreasing rate throughout 2018 is mainly attributed to a change in the estimate of R&D credits and improved profitability in certain international entities.          

 


70

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b), our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation as of the end of the period covered by this report of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e).  Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.    

(b) Management’s Annual Report on Internal Control over Financial Reporting

As required by Rule 13a-15(d), our management, including the CEO and CFO, also conducted an evaluation of our internal control over financial reporting, as defined by Rule 13a-15(f).  Management’s Report on Internal Control over Financial Reporting is located at the front of Part II, Item 8 of this report.

(c) Attestation Report of the Independent Registered Public Accounting Firm

Our independent registered public accounting firm issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2019.  KPMG LLP’s report is located immediately following Management’s Report on Internal Control over Financial Reporting at the front of Part II, Item 8 of this report.

(d) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

None.

 

 

 

71

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

See the Proxy Statement for our 2020 Annual Meeting of Stockholders, from which information regarding directors is incorporated herein by reference.  Information regarding our executive officers will be omitted from such proxy statement and is furnished in a separate item captioned ‘‘Executive Officers of the Registrant’’ included at the end of Part I of this Form 10-K.

 

Item 11.

Executive Compensation

See the Proxy Statement for our 2020 Annual Meeting of Stockholders, from which information in response to this Item is incorporated herein by reference.

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

See the Proxy Statement for our 2020 Annual Meeting of Stockholders, from which information required by this Item is incorporated herein by reference, with the exception of the equity compensation plan information which is presented in Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” and is incorporated herein by reference.

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

See the Proxy Statement for our 2020 Annual Meeting of Stockholders, from which information in response to this Item is incorporated herein by reference.

 

Item  14.

Principal Accounting Fees and Services

See the Proxy Statement for our 2020 Annual Meeting of Stockholders, from which information in response to this Item is incorporated herein by reference.

 

 

 

72

 

PART IV

 

  

Item  15.

Exhibits, Financial Statement Schedules

(a) Financial Statements, Financial Statement Schedules, and Exhibits:

(1) Financial Statements

The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page 39.

(2) Financial Statement Schedules:

None. Any information required in the Financial Statement Schedules is provided in sufficient detail in our Financial Statements and notes thereto.

(3) Exhibits

Exhibits are listed in the Exhibit Index on page 74.

The Exhibits include management contracts, compensatory plans and arrangements required to be filed as exhibits to the Form 10-K by Item 601 of Regulation S-K.

(b) Exhibits

The Exhibits filed or incorporated by reference herewith are as specified in the Exhibit Index.

 

Item  16.

Form 10-K Summary

None.

 

 

 

 

73

 

 

  EXHIBIT INDEX

 

Exhibit
Number

 

Description

 

 

2.10 (10)

 

Implementation Agreement between CSG Systems International, Inc. and Intec

 

 

3.01 (1)

 

Restated Certificate of Incorporation of the Company (P)

 

 

3.02 (40)

 

Amended and Restated Bylaws of CSG Systems International, Inc.

 

 

3.03 (2)

 

Certificate of Amendment of Restated Certificate of Incorporation of CSG Systems International, Inc.

 

 

4.01 (1)

 

Form of Common Stock Certificate (P)

 

 

4.10 (38)

 

Indenture dated March 15, 2016, between CSG Systems International, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee

 

 

4.50 (49)

 

 

$350 million Credit Agreement dated as of March 5, 2018, among CSG Systems International, Inc., as Borrower, the Subsidiary Guarantors Party hereto, Bank of America, N.A., as Administrative Agent, Collateral Agent, Swingline Lender and Issuing Bank,  Wells Fargo Bank, National Association, as Syndication Agent, Compass Bank and HSBC Bank USA, National Association, as Co-Documentation Agents, the Lenders Party Hereto, and the Other Issuing Banks Party Hereto Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners

 

 

4.70 (30)

 

$350,000,000 Second Amended and Restated Credit Agreement dated as of February 3, 2015, among CSG Systems International, Inc., as Borrower, The Guarantors Party Hereto, The Lenders Party Hereto, RBC Capital Markets, Wells Fargo Securities, LLC, HSBC Bank USA, National Association, BBVA, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Joint Lead Arrangers and Joint Bookmanagers; Wells Fargo Bank, National Association as Syndication Agent; HSBC Bank USA, National Association, BBVA Compass, and Bank of America, N.A. as Co-Documentation Agents; Royal Bank of Canada as Administrative Agent and Collateral Agent, and Royal Bank of Canada as Issuing Bank and Swingline Lender

 

 

4.90

 

Description of Capital Stock

 

 

10.02 (13)

 

Second Amended and Restated 1996 Employee Stock Purchase Plan, as adopted on May 17, 2011

 

 

10.04 (50)

 

CSG Systems International, Inc. Amended and Restated 2005 Stock Incentive Plan, as amended on May 17, 2018

 

 

10.05 (13)

 

CSG Systems International, Inc. Performance Bonus Program, as amended on August 14, 2007

 

 

10.06 (5)

 

CSG Systems International, Inc. 2001 Stock Incentive Plan, as amended August 14, 2007

 

 

10.15 (9)

 

Form of Indemnification Agreement between CSG Systems International, Inc. and Directors and Executive Officers

 

 

10.16 (4)

 

Indemnification Agreement between CSG Systems International, Inc. and Mr. Ronald Cooper, dated November 16, 2006

 

 

10.22* (21)

 

CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22A* (22)

 

First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

74

 

Exhibit
Number

 

Description

10.22B* (23)

 

Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22C* (23)

 

Third Amendment to the Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22D* (23)

 

Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22E* (24)

 

Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22F* (24)

 

Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22G* (24)

 

Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22H* (25)

 

CD Addendum to CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.22I* (29)

 

Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.22J* (29)

 

Tenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.22K* (30)

 

Eleventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.22L* (30)

 

Twelfth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.22M* (30)

 

Thirteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.22N* (31)

 

Fourteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22O* (31)

 

Fifteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22P* (32)

 

Sixteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22Q* (33)

 

Seventeenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22R* (35)

 

Eighteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22S* (35)

 

Nineteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22T*(39)

 

Nineteenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22U* (39)

 

Twentieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

75

 

Exhibit
Number

 

Description

 

 

10.22V* (41)

 

Twenty-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22W* (41)

 

Twenty-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22X* (44)

 

Twenty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22Y* (44)

 

Common Stock Purchase Warrant between CSG Systems International, Inc. and Comcast Alpha Holdings, Inc., dated January 3, 2017

 

 

10.22Z* (45)

 

Twenty-Sixth Amendment to the CSG Master Subscriber Master Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AA* (46)

 

Twenty-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AB* (46)

 

Twenty-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AC* (46)

 

Twenty-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AD* (46)

 

Twenty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AE* (46)

 

Thirtieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AF* (46)

 

Thirty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AG* (47)

 

Thirty-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AH* (51)

Thirty-third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AI* (51)

Thirty-fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AJ* (52)

Thirty-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG System, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AK* (54)

Thirty-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AL* (54)

Thirty-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AM* (54)

Thirty-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AN* (55)

Thirty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

76

 

Exhibit
Number

 

Description

10.22AO* (55)

Fortieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.22AP* (56)

 

Forty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

 

10.23* (8)

 

CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23A* (9)

 

Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23B* (11)

 

Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23C* (12)

 

Tenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23D* (14)

 

Eleventh Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23E* (14)

 

Twelfth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23F* (14)

 

Thirteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23G* (14)

 

Fourteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23H* (15)

 

Fifteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23I* (18)

 

Sixteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23J* (17)

 

Seventeenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23K* (17)

 

Eighteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23L* (16)

 

Nineteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23M* (17)

 

Twentieth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23N* (16)

 

Twenty-First Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

 

 10.23O* (18)

 

Twenty-Second Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23P* (18)

 

Twenty-Third Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23Q* (18)

 

Twenty-Fourth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

77

 

Exhibit
Number

 

Description

 

 

10.23R* (19)

 

Twenty-Fifth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23S* (19)

 

Twenty-Sixth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23T* (20)

 

Twenty-Seventh Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23U* (20)

 

Twenty-Eighth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23V* (20)

 

Twenty-Ninth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23W* (20)

 

Thirtieth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23X* (22)

 

Thirty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23Y* (22)

 

Thirty-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23Z* (22)

 

Thirty-Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AA* (22)

 

Thirty-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AB* (23)

 

Thirty-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AC* (23)

 

Thirty-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AD* (24)

 

Thirty-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AE* (24)

 

Thirty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AF* (26)

 

Fortieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AG* (26)

 

Forty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AH* (29)

 

Forty-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AI* (29)

 

Forty-Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AJ* (29)

 

Forty-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

78

 

Exhibit
Number

 

Description

10.23AK* (29)

 

Forty-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AL* (29)

 

Forty-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AM* (30)

Forty-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AN* (32)

 

Forty-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AO* (33)

 

Forty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AP* (33)

 

Fiftieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AQ (39)

 

Fifty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AR* (42)

 

Fifty-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AS* (42)

 

Fifty-Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AT* (42)

 

Fifty-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AU* (44)

 

Fifty-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AV* (44)

 

Fifty-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network L.L.C.

 

 

10.23AW* (46)

 

Fifty-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23AX* (47)

 

Sixtieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23AY* (47)

 

Sixty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23AZ* (48)

 

Fifty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23BA* (48)

 

Sixty-Second Amendment to Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23BB* (48)

 

Sixty-Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and DISH Network, L.L.C.

 

 

10.23BC* (52)

Sixty-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG System, Inc. and DISH Network, L.L.C.

 

 

10.23BD (53)

Sixty-Fourth Amendment to Master Subscriber Management System Agreement between CSG System, Inc. and DISH Network, L.L.C.

79

 

Exhibit
Number

 

Description

 

 

10.23BE (53)

Sixty-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG System, Inc. and DISH Network, L.L.C.

 

 

10.23BF (53)

Sixty-Seventh Amendment to Master Subscriber Management System Agreement between CSG System, Inc. and DISH Network, L.L.C.

 

 

10.23BG (53)

Sixty-Eighth Amendment to Master Subscriber Management System Agreement between CSG System, Inc. and DISH Network, L.L.C.

 

 

10.23BH (53)

Seventieth Amendment to Master Subscriber Management System Agreement between CSG System, Inc. and DISH Network, L.L.C.

 

 

10.24* (7)

 

CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable dated March 13, 2003

 

 

10.24A* (7)

 

ComTec Processing and Production Services Agreement

 

 

10.24B* (7)

 

Second Amendment to the Processing and Production Services Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24C* (11)

 

Forty-Ninth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24D* (14)

 

Third Amendment to the Processing and Production Services Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24E* (14)

 

Fifty-First Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24F* (14)

 

Fifty-Third Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24G* (18)

 

Fifty-Seventh Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24H* (18)

 

Sixty-First Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24I* (19)

 

Fifty-Sixth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24J* (19)

 

Sixty-Third Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24K* (19)

 

Sixty-Fifth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24L* (20)

 

Forty-Eighth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24M* (20)

 

Fifty-Ninth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24N* (20)

 

Sixty-Seventh Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24O* (20)

 

Sixty-Eighth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

80

 

Exhibit
Number

 

Description

 

 

 

10.24P (20)

 

Second Amendment to Affiliate Addendum (Corporate National Sales Division)

 

 

10.24P* (21)

 

Sixtieth Amendment to the CSG Master Subscriber Management Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24Q (20)

 

Fourth Amendment to Affiliate Addendum Carolina Region

 

 

10.24Q* (21)

 

Seventieth Amendment to the CSG Master Subscriber Management Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24R (21)

 

First Amendment to Affiliate Addendum Media Sales Division between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24S* (22)

 

Sixty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24T* (23)

 

Seventy-Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24U* (23)

 

Seventy-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24V* (24)

 

Fifty-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24W* (24)

 

Seventy-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

 

10.24X* (24)

 

Seventy-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24Y* (24)

 

Seventy-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24Z* (24)

 

Eighty-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AA* (26)

 

Seventy-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AB* (26)

 

Seventy-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AC* (26)

 

Seventy-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AD* (27)

 

Eighty-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AE* (27)

 

Eighty-Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AF* (27)

 

Eighty-Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AG* (27)

 

Eighty-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

81

 

Exhibit
Number

 

Description

10.24AH* (28)

 

Amended and Restated Processing and Production Services Agreement entered into between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AI* (29)

 

Eighty-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AJ* (29)

 

Eighty-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AK* (29)

 

Eighty-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AL* (29)

 

Ninetieth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AM* (29)

 

Ninety-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AN* (30)

 

Eighty-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AO* (30)

 

First Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Time Warner Cable Enterprises LLC

 

 

10.24AP* (31)

 

Ninety-Fifth Amendment of the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AQ* (31)

Second Amendment to the Amended and Restated Processing and Production Services Agreement Between CSG Systems, Inc. and Time Warner Cable Enterprises LLC

 

 

10.24AR* (32)

Ninety-Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AS* (32)

Ninety-Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AT* (33)

Third Amendment to the Amended and Restated Processing and Production Services Agreement between CSG Systems, Inc. and Time Warner Cable Enterprises LLC

 

 

10.24AU* (33)

Ninety-Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AV* (33)

Ninety-Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AW* (35)

Ninety-Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AX* (35)

One Hundredth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AY* (35)

One Hundred First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24AZ* (36)

One Hundred Third Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24BA* (39)

One Hundred Second Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

82

 

Exhibit
Number

 

Description

 

 

10.24BB* (41)

One Hundred Fourth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24BC* (41)

One Hundred Sixth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24BD* (42)

One Hundred Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BE* (42)

One Hundred Seventh Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Time Warner Cable Inc.

 

 

10.24BF* (42)

One Hundred Eighth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BG* (44)

One Hundred Ninth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BH* (44)

One Hundred Tenth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BI* (44)

One Hundred Twelfth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BJ* (45)

 

One Hundred Eleventh Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BK* (45)

 

One Hundred Fourteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BL* (45)

 

One Hundred Fifteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BM* (45)

 

One Hundred Sixteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BN (45)

 

One Hundred Seventeenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BO* (46)

 

One Hundred Eighteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BP* (46)

 

One Hundred Nineteenth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BQ (46)

 

One Hundred Twentieth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BR (46)

 

One Hundred Twenty-First Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BS* (46)

 

One Hundred Twenty-Second Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.24BT (46)

 

One Hundred Twenty-Third Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

83

 

Exhibit
Number

 

Description

10.24BU* (46)

 

One Hundred Twenty-Fourth Amendment to the CSG Master Subscriber Management System Agreement Between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25* (41)

 

Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25A* (41)

 

First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25B* (41)

 

Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25C* (41)

 

Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25D* (41)

 

Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25E* (41)

 

Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25F* (41)

 

Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25G* (41)

 

Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25H* (41)

 

Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25I* (41)

 

Tenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25J* (41)

 

Eleventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25K* (41)

 

Twelfth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25L* (41)

 

Thirteenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25M* (41)

 

Fourteenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25N* (41)

 

Fifteenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25O (41)

 

Sixteenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25P* (41)

 

Seventeenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25Q* (41)

 

Eighteenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25R* (41)

 

Nineteenth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

84

 

Exhibit
Number

 

Description

 

 

10.25S* (41)

 

Twentieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25T* (41)

 

Twenty-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25U* (41)

 

Twenty-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25V (41)

 

Twenty-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25W* (41)

 

Twenty-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25X* (41)

 

Twenty-Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25Y* (41)

 

Twenty-Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25Z* (41)

 

Twenty-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AA* (41)

 

Twenty-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AB* (41)

 

Thirtieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AC* (41)

 

Thirty-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AD* (41)

 

Thirty-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AE* (41)

 

Thirty-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AF* (41)

 

Thirty-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AG* (41)

 

Amended and Restated Thirty-Sixth Amendment to Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AH* (41)

 

Thirty-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AI* (41)

 

Thirty-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AJ* (41)

 

Thirty-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AK* (41)

 

Fortieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

85

 

Exhibit
Number

 

Description

10.25AL* (41)

 

Forty-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AM* (41)

 

Forty-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AN* (41)

 

Forty-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AO* (41)

 

Forty-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AP* (41)

 

Forty-Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AQ* (41)

 

Forty-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AR* (41)

 

Forty-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AS* (41)

 

Forty-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AT* (41)

 

Fiftieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AU* (41)

 

Fifty-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AV* (41)

 

Fifty-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AW* (41)

 

Fifty-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AX* (41)

 

Fifty-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AY* (41)

 

Fifty-Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25AZ* (41)

 

Fifty-Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BA* (41)

 

Fifty-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BB (41)

 

Fifty-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BC* (41)

 

Fifty-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BD* (41)

 

Sixtieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BE* (41)

 

Sixty-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

86

 

Exhibit
Number

 

Description

 

 

10.25BF (41)

 

Sixty-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BG* (41)

 

Sixty-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BH (41)

 

Sixty-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BI (41)

 

Sixty-Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BJ (41)

 

Sixty-Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BK* (41)

 

Sixty-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BL* (41)

 

Sixty-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BM* (41)

 

Seventieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BN* (41)

 

Seventy-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BO* (41)

 

Seventy-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BP* (41)

 

Seventy-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BQ* (41)

 

Seventy-Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BR* (41)

 

Seventy-Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BS* (41)

 

Seventy-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BT* (41)

 

Seventy-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BU* (41)

 

Seventy-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BV* (41)

 

Eightieth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BW* (41)

 

Eighty-First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BX* (41)

 

Eighty-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

87

 

Exhibit
Number

 

Description

10.25BY* (41)

 

Eighty-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25BZ* (41)

 

Eighty-Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CA* (41)

 

Eighty-Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CB* (41)

 

Eighty-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CC* (41)

 

Eighty-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CD* (42)

 

Eighty-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CE* (42)

 

Ninety-First Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CF* (42)

 

Ninety-Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CG* (44)

 

Ninety-Third Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CH* (44)

 

Ninety-Fifth Amendment to the CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Cable Holding Company, LLC

 

 

10.25CI* (45)

 

Ninety-Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CJ* (45)

 

Ninety-Seventh Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CK* (45)

 

Ninety-Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CL* (45)

 

Ninety-Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CM* (45)

 

One Hundred First Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CN* (46)

 

One Hundredth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CO* (46)

 

One Hundred Second Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CP* (46)

 

One Hundred Fourth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CQ* (46)

 

One Hundred Sixth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CR* (46)

 

One Hundred Eighth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

88

 

Exhibit
Number

 

Description

 

 

10.25CS* (46)

 

One Hundred Ninth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.25CT* (47)

 

One Hundred Fifth Amendment to the Amended and Restated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Holding Company, LLC

 

 

10.26* (47)

 

Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26A* (47)

 

Second Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26B* (47)

 

Third Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26C* (47)

 

Fourth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26D (48)

 

First Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26E* (48)

 

Fifth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26F* (48)

 

Sixth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26G* (48)

 

Eighth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26H* (48)

 

Ninth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26I (48)

 

Tenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26J* (49)

Eleventh Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26K* (51)

Thirteenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26L* (51)

Fifteenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26M* (51)

Seventeenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26N* (51)

Eighteenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26O* (52)

Seventh Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26P* (52)

Twelfth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

89

 

Exhibit
Number

 

Description

10.26Q* (52)

Fourteenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26R* (52)

Nineteenth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26S* (54)

Twentieth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26T* (55)

Twenty-Second Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26U* (55)

Twenty-Fourth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26V* (55)

Twenty-Fifth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26W* (55)

Twenty-Sixth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26X* (55)

Twenty-Seventh Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26Y* (55)

Twenty-Eighth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26Z* (56)

Twenty-Third Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26AA* (56)

Thirty-First Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26AB* (56)

Thirty-Second Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26AC* (56)

Thirty-Third Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26AD* (56)

Thirty-Fourth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.26AE*

Thirty-Fifth Amendment to Consolidated CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Charter Communications Operating, LLC

 

 

10.27*

CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.27A*

CD Addendum to CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and Comcast Cable Communications Management, LLC

 

 

10.39 (52)

CSG Systems, Inc. Wealth Accumulation Plan, as restated and amended effective December 6, 2017

 

 

10.39A (52)

Adoption Agreement to CSG Systems, Inc. Wealth Accumulation Plan, executed September 13, 2018

 

 

10.50 (3)

 

CSG Systems International, Inc. 2001 Stock Incentive Plan

 

 

10.51 (6)

 

Employment Agreement with Bret C. Griess, dated February 19, 2009

 

 

90

 

Exhibit
Number

 

Description

10.51A (34)

 

Amended and Restated Employment Agreement with Bret C. Griess, dated November 19, 2015

 

 

10.51B (43)

 

Amendment No. 1 to Amended and Restated Employment Agreement with Bret C. Griess, dated November 17, 2016

 

 

10.52 (37)

 

Employment Agreement with Brian Shepherd, dated February 15, 2016

 

 

10.52A (43)

 

Amendment No. 1 to Employment Agreement with Brian Shepherd, dated November 17, 2016

 

 

10.53 (37)

 

Employment Agreement with Kenneth M. Kennedy, dated March 1, 2016

 

 

10.53A (43)

 

Amendment No. 1 to Employment Agreement with Kenneth M. Kennedy, dated November 17, 2016

 

 

10.54 (50)

 

Employment Agreement with Rolland B. Johns, dated May 17, 2018

 

 

10.83 (51)

 

Forms of Agreement for Equity Compensation

 

 

 

10.84 (39)

 

Forms of Agreement for Equity Compensation

 

 

10.85 (51)

 

Forms of Agreement for Equity Compensation

 

 

21.01

 

Subsidiaries of the Registrant

 

 

23.01

 

Consent of KPMG LLP

 

 

31.01

 

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.02

 

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32.01

 

Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.INS

 

XBRL Instance Document

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF

 

 XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1)

Incorporated by reference to the exhibit of the same number to the Registration Statement No. 333-244 on Form S-1.

(2)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 1997.

(3)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2002.

(4)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated November 16, 2006.

(5)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2007.

(6)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated February 19, 2009.

(7)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2008, filed on September 8, 2009.

91

 

(8)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.

(9)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2010.

(10)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2010.

(11)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010.

(12)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.

(13)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated May 17, 2011.

(14)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.

(15)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.

(16)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012.

(17)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q/A for the period ended March 31, 2012, filed on August 29, 2012.

(18)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012.

(19)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2012.

(20)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012.

(21)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013.

(22)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013.

(23)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2013.

(24)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013.

(25)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-K/A for the period ended December 31, 2013, filed on July 9, 2014.

(26)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2014.

(27)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2014.

(28)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q/A for the period ended June 30, 2014, filed on October 23, 2014.

(29)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2014.

(30)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014.

(31)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2015.

(32)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2015.

(33)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2015.

(34)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated November 19, 2015.

(35)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015.

(36)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2015, filed on August 29, 2016.

(37)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated February 25, 2016.

92

 

(38)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated March 9, 2016.

(39)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2016.

(40)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated May 26, 2016.

(41)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2016.

(42)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2016.

(43)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated November 17, 2016.

(44)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016.

(45)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2017.

(46)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2017.

(47)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2017.

(48)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017.

(49)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2018.

(50)

Incorporated by reference to the exhibit of the same number to the Registrant’s Current Report on Form 8-K for the event dated May 17, 2018.

(51)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2018.

(52)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2018.

(53)

Incorporated by reference to the exhibit of the same number to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018.

(54)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2019.

(55)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2019.

(56)

Incorporated by reference to the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2019.

 

*

Portions of the exhibit have been omitted pursuant to an application for confidential treatment, and the omitted portions have been filed separately with the Commission.

 

 

93

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

CSG SYSTEMS INTERNATIONAL, INC.

 

By:

 

/s/ BRET C. GRIESS

 

 

 

Bret C. Griess

 

 

 

President and Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Date: February 21, 2020

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.

 

Signature

 

Title

  

Date

/s/ DONALD B. REED

  

Chairman of the Board of Directors

  

February 21, 2020

Donald B. Reed

 

 

 

 

 

 

 

 

/s/ BRET C. GRIESS

 

Director, President and Chief Executive Officer

  

February 21, 2020

Bret C. Griess

 

(Principal Executive Officer)

 

 

 

 

 

/s/ ROLLAND B. JOHNS

 

Chief Financial Officer

  

February 21, 2020

Rolland B. Johns

 

(Principal Financial Officer)

 

 

 

 

 

/s/ DAVID N. SHAAF

 

Chief Accounting Officer

  

February 21, 2020

David N. Schaaf

 

(Principal Accounting Officer)

 

 

 

 

 

 

/s/ DAVID G. BARNES

 

Director

  

February 21, 2020

David G. Barnes

 

 

 

 

 

 

 

/s/ RONALD H. COOPER

 

Director

 

February 21, 2020

Ronald H. Cooper

 

 

 

 

 

 

 

/s/ MARWAN H. FAWAZ

 

Director

  

February 21, 2020

Marwan H. Fawaz

 

 

 

 

 

 

 

 

 

/s/ RAJAN NAIK

 

Director

  

February 21, 2020

Rajan Naik

 

 

 

 

 

 

 

 

 

/s/ JANICE I. OBUCHOWSKI

 

Director

  

February 21, 2020

Janice I. Obuchowski

 

 

 

 

 

 

 

 

/s/ FRANK V. SICA

 

Director

  

February 21, 2020

Frank V. Sica

 

 

 

 

 

 

 

 

/s/ DONALD V. SMITH

 

Director

  

February 21, 2020

Donald V. Smith

 

 

 

 

 

 

 

 

/s/ HAIYAN SONG

 

Director

  

February 21, 2020

Haiyan Song

 

 

 

 

 

 

 

 

/s/ JAMES A. UNRUH

 

Director

  

February 21, 2020

James A. Unruh

 

 

 

 

 

 

94