UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
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.) |
7887 East Belleview, Suite 1000
Englewood, Colorado 80111
(Address of principal executive offices, including zip code)
(303) 796-2850
(Registrant’s telephone number, including area code)
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 x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES x NO ¨
Shares of common stock outstanding at May 5, 2004: 53,933,005.
CSG SYSTEMS INTERNATIONAL, INC.
FORM 10-Q For the Quarter Ended March 31, 2004
| Page No. | ||||
| Part I -FINANCIAL INFORMATION |
||||
| Item 1. |
Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 (Unaudited) |
3 | ||
| Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003 (Unaudited) | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited) | 5 | |||
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3. |
33 | |||
| Item 4. |
34 | |||
| Part II - OTHER INFORMATION |
||||
| Item 1. |
35 | |||
| Item 2 |
35 | |||
| Item 6. |
35 | |||
| 37 | ||||
| 38 | ||||
2
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | (unaudited) | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 104,520 | $ | 105,397 | ||||
| Short-term investments |
1,216 | — | ||||||
| Total cash, cash equivalents and short-term investments |
105,736 | 105,397 | ||||||
| Trade accounts receivable- |
||||||||
| Billed, net of allowance of $11,397 and $11,145 |
137,631 | 130,691 | ||||||
| Unbilled and other |
14,409 | 18,042 | ||||||
| Deferred income taxes |
7,673 | 9,134 | ||||||
| Income taxes receivable |
4,353 | 35,076 | ||||||
| Other current assets |
10,357 | 11,697 | ||||||
| Total current assets |
280,159 | 310,037 | ||||||
| Property and equipment, net of depreciation of $91,712 and $89,529 |
36,051 | 38,218 | ||||||
| Software, net of amortization of $66,487 and $62,957 |
34,527 | 37,780 | ||||||
| Goodwill |
219,404 | 219,199 | ||||||
| Client contracts, net of amortization of $53,205 and $50,973 |
55,363 | 57,458 | ||||||
| Deferred income taxes |
50,674 | 53,327 | ||||||
| Other assets |
8,770 | 8,756 | ||||||
| Total assets |
$ | 684,948 | $ | 724,775 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Current maturities of long-term debt |
$ | 19,624 | $ | 45,137 | ||||
| Client deposits |
18,963 | 17,175 | ||||||
| Trade accounts payable |
20,850 | 21,291 | ||||||
| Accrued employee compensation |
23,807 | 32,415 | ||||||
| Deferred revenue |
57,510 | 52,655 | ||||||
| Income taxes payable |
25,388 | 20,723 | ||||||
| Arbitration charge payable |
— | 25,181 | ||||||
| Other current liabilities |
23,413 | 25,818 | ||||||
| Total current liabilities |
189,555 | 240,395 | ||||||
| Non-current liabilities: |
||||||||
| Long-term debt, net of current maturities |
179,301 | 183,788 | ||||||
| Deferred revenue |
3,756 | 3,270 | ||||||
| Other non-current liabilities |
5,415 | 6,537 | ||||||
| Total non-current liabilities |
188,472 | 193,595 | ||||||
| Stockholders' equity: |
||||||||
| Preferred stock, par value $.01 per share; 10,000,000 shares authorized; zero shares issued and outstanding |
— | — | ||||||
| Common stock, par value $.01 per share; 100,000,000 shares authorized; 53,779,261 shares and 53,788,062 shares outstanding |
593 | 593 | ||||||
| Additional paid-in capital |
285,519 | 281,784 | ||||||
| Deferred employee compensation |
(3,891 | ) | (4,458 | ) | ||||
| Accumulated other comprehensive income: |
||||||||
| Unrealized gain on short-term investments, net of tax |
1 | 1 | ||||||
| Cumulative translation adjustments |
7,520 | 6,519 | ||||||
| Treasury stock, at cost, 5,499,796 shares |
(171,111 | ) | (171,111 | ) | ||||
| Accumulated earnings |
188,290 | 177,457 | ||||||
| Total stockholders’ equity |
306,921 | 290,785 | ||||||
| Total liabilities and stockholders’ equity |
$ | 684,948 | $ | 724,775 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
| Three months ended |
||||||||
| March 31, 2004 |
March 31, 2003 |
|||||||
| (unaudited) | (unaudited) | |||||||
| Revenues: |
||||||||
| Processing and related services |
$ | 81,132 | $ | 91,176 | ||||
| Software |
7,637 | 10,164 | ||||||
| Maintenance |
25,051 | 22,403 | ||||||
| Professional services |
16,544 | 18,189 | ||||||
| Total revenues |
130,364 | 141,932 | ||||||
| Cost of revenues: |
||||||||
| Cost of processing and related services |
33,806 | 34,119 | ||||||
| Cost of software and maintenance |
16,274 | 18,310 | ||||||
| Cost of professional services |
14,150 | 18,555 | ||||||
| Total cost of revenues |
64,230 | 70,984 | ||||||
| Gross margin (exclusive of depreciation) |
66,134 | 70,948 | ||||||
| Operating expenses: |
||||||||
| Research and development |
15,840 | 15,498 | ||||||
| Selling, general and administrative |
23,223 | 29,836 | ||||||
| Depreciation |
3,636 | 4,599 | ||||||
| Restructuring charges |
2,151 | 3,159 | ||||||
| Total operating expenses |
44,850 | 53,092 | ||||||
| Operating income |
21,284 | 17,856 | ||||||
| Other income (expense): |
||||||||
| Interest expense |
(3,554 | ) | (3,874 | ) | ||||
| Interest and investment income, net |
283 | 288 | ||||||
| Other |
(513 | ) | 386 | |||||
| Total other |
(3,784 | ) | (3,200 | ) | ||||
| Income before income taxes |
17,500 | 14,656 | ||||||
| Income tax provision |
(6,667 | ) | (5,949 | ) | ||||
| Net income |
$ | 10,833 | $ | 8,707 | ||||
| Basic net income per common share: |
||||||||
| Net income available to common stockholders |
$ | 0.21 | $ | 0.17 | ||||
| Weighted average common shares |
51,682 | 51,306 | ||||||
| Diluted net income per common share: |
||||||||
| Net income available to common stockholders |
$ | 0.21 | $ | 0.17 | ||||
| Weighted average common shares |
52,255 | 51,485 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Three months ended |
||||||||
| March 31, 2004 |
March 31, 2003 |
|||||||
| (unaudited) | (unaudited) | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 10,833 | $ | 8,707 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities- |
||||||||
| Depreciation |
3,636 | 4,599 | ||||||
| Amortization |
6,321 | 6,591 | ||||||
| Restructuring charge for abandonment of facilities |
595 | 683 | ||||||
| Deferred income taxes |
4,162 | (64 | ) | |||||
| Tax benefit of stock options exercised |
7 | 2 | ||||||
| Stock-based employee compensation |
4,145 | 1,295 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Trade accounts and other receivables, net |
(2,079 | ) | (6,125 | ) | ||||
| Other current and noncurrent assets |
1,344 | (97 | ) | |||||
| Arbitration charge payable |
(25,181 | ) | — | |||||
| Income taxes payable/receivable |
35,192 | 1,599 | ||||||
| Accounts payable and accrued liabilities |
(11,515 | ) | (11,990 | ) | ||||
| Deferred revenue |
4,505 | 17,022 | ||||||
| Net cash provided by operating activities |
31,965 | 22,222 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(1,406 | ) | (2,262 | ) | ||||
| Purchases of short-term investments |
(1,216 | ) | (6 | ) | ||||
| Acquisition of businesses and assets, net of cash acquired |
(307 | ) | (835 | ) | ||||
| Acquisition of and investments in client contracts |
(431 | ) | (290 | ) | ||||
| Net cash used in investing activities |
(3,360 | ) | (3,393 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
357 | 473 | ||||||
| Repurchase and cancellation of common stock |
(213 | ) | — | |||||
| Payments on long-term debt. |
(30,000 | ) | (1,075 | ) | ||||
| Payments of deferred financing costs |
(247 | ) | (87 | ) | ||||
| Net cash used in financing activities |
(30,103 | ) | (689 | ) | ||||