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Form 10-Q CSG SYSTEMS INTERNATIONA For: Mar 31

May 6, 2016 3:30 PM EDT

 

 

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, 2016

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.)

9555 Maroon Circle

Englewood, Colorado 80112

(Address of principal executive offices, including zip code)

(303) 200-2000

(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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

YES   x           NO   ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨            NO   x

Shares of common stock outstanding at May 2, 2016: 32,435,303

 

 

 


CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q for the Quarter Ended March 31, 2016

INDEX

 

 

 

Page No.

 

 

 

Part I -FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Income for the Quarters Ended March 31, 2016 and 2015 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters Ended March 31, 2016 and 2015 (Unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2016 and 2015 (Unaudited)

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

Part II -OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 6.

Exhibits

26

 

 

 

 

Signatures

27

 

 

 

 

Index to Exhibits

28

 

 

 

2


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except per share amounts)  

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

289,733

 

 

$

132,631

 

Short-term investments

 

 

95,497

 

 

 

108,305

 

Total cash, cash equivalents and short-term investments

 

 

385,230

 

 

 

240,936

 

Trade accounts receivable:

 

 

 

 

 

 

 

 

Billed, net of allowance of $3,647 and $3,600

 

 

181,650

 

 

 

178,854

 

Unbilled

 

 

39,236

 

 

 

41,110

 

Income taxes receivable

 

 

4,314

 

 

 

4,038

 

Other current assets

 

 

28,944

 

 

 

35,153

 

Total current assets

 

 

639,374

 

 

 

500,091

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation of $116,038 and $112,282

 

 

34,290

 

 

 

35,992

 

Software, net of amortization of $97,171 and $95,094

 

 

33,213

 

 

 

35,095

 

Goodwill

 

 

216,911

 

 

 

219,724

 

Client contracts, net of amortization of $90,402 and $87,890

 

 

37,516

 

 

 

39,738

 

Deferred income taxes

 

 

12,470

 

 

 

17,462

 

Other assets

 

 

14,646

 

 

 

14,629

 

Total non-current assets

 

 

349,046

 

 

 

362,640

 

Total assets

 

$

988,420

 

 

$

862,731

 

LIABILITIES, CURRENT PORTION OF LONG-TERM DEBT CONVERSION OBLIGATION AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt, net of unamortized discounts of $5,020 and $8,632

 

$

114,355

 

 

$

148,868

 

Client deposits

 

 

33,498

 

 

 

33,694

 

Trade accounts payable

 

 

28,938

 

 

 

43,392

 

Accrued employee compensation

 

 

43,479

 

 

 

59,607

 

Deferred revenue

 

 

46,930

 

 

 

41,907

 

Income taxes payable

 

 

7,407

 

 

 

8,962

 

Other current liabilities

 

 

18,984

 

 

 

22,980

 

Total current liabilities

 

 

293,591

 

 

 

359,410

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $26,464 and $4,738

 

 

334,786

 

 

 

130,262

 

Deferred revenue

 

 

9,045

 

 

 

9,828

 

Income taxes payable

 

 

4,009

 

 

 

4,413

 

Deferred income taxes

 

 

4,036

 

 

 

182

 

Other non-current liabilities

 

 

12,166

 

 

 

12,791

 

Total non-current liabilities

 

 

364,042

 

 

 

157,476

 

Total liabilities

 

 

657,633

 

 

 

516,886

 

Current portion of long-term debt conversion obligation

 

 

107,604

 

 

 

-

 

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;  32,447 and 32,555 shares outstanding

 

 

673

 

 

 

672

 

Common stock warrants; 2,851 and 2,851 warrants issued and outstanding

 

 

7,310

 

 

 

7,310

 

Additional paid-in capital

 

 

374,689

 

 

 

503,254

 

Treasury stock, at cost, 34,865 and 34,601 shares

 

 

(823,963

)

 

 

(814,437

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on short-term investments, net of tax

 

 

814

 

 

 

(97

)

Cumulative foreign currency translation adjustments

 

 

(27,390

)

 

 

(26,288

)

Accumulated earnings

 

 

691,050

 

 

 

675,431

 

Total stockholders' equity

 

 

223,183

 

 

 

345,845

 

Total liabilities, current portion of long-term debt conversion obligation and stockholders' equity

 

$

988,420

 

 

$

862,731

 

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

 

3


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(in thousands, except per share amounts)

 

 

 

Quarter Ended

 

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Cloud and related solutions

 

$

149,814

 

 

$

143,833

 

 

Software and services

 

 

19,178

 

 

 

22,633

 

 

Maintenance

 

 

17,234

 

 

 

19,165

 

 

Total revenues

 

 

186,226

 

 

 

185,631

 

 

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

 

 

 

 

 

 

 

 

 

Cloud and related solutions

 

 

66,233

 

 

 

69,260

 

 

Software and services

 

 

13,366

 

 

 

21,109

 

 

Maintenance

 

 

9,884

 

 

 

9,897

 

 

Total cost of revenues

 

 

89,483

 

 

 

100,266

 

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,626

 

 

 

25,729

 

 

Selling, general and administrative

 

 

34,051

 

 

 

33,442

 

 

Depreciation

 

 

3,516

 

 

 

3,695

 

 

Restructuring and reorganization charges

 

 

(5,741

)

 

 

606

 

 

Total operating expenses

 

 

144,935

 

 

 

163,738

 

 

Operating income

 

 

41,291

 

 

 

21,893

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,005

)

 

 

(3,368

)

 

Amortization of original issue discount

 

 

(1,658

)

 

 

(1,516

)

 

Interest and investment income, net

 

 

468

 

 

 

167

 

 

Loss on repurchase of convertible notes

 

 

(3,211

)

 

 

-

 

 

Other, net

 

 

(791

)

 

 

(465

)

 

Total other

 

 

(8,197

)

 

 

(5,182

)

 

Income before income taxes

 

 

33,094

 

 

 

16,711

 

 

Income tax provision

 

 

(11,590

)

 

 

(7,353

)

 

Net income

 

$

21,504

 

 

$

9,358

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

30,762

 

 

 

31,542

 

 

Diluted

 

 

33,672

 

 

 

33,340

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.70

 

 

$

0.30

 

 

Diluted

 

 

0.64

 

 

 

0.28

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share:

 

$

0.19

 

 

$

0.18

 

 

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

 

 

 

4


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

Net income

 

$

21,504

 

 

$

9,358

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,102

)

 

 

(9,535

)

 

Unrealized holding gains on short-term investments arising during period

 

 

911

 

 

 

3

 

 

Other comprehensive loss, net of tax

 

 

(191

)

 

 

(9,532

)

 

Total comprehensive income (loss), net of tax

 

$

21,313

 

 

$

(174

)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)

 

 

 

Quarter Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

21,504

 

 

$

9,358

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

3,516

 

 

 

3,695

 

Amortization

 

 

6,415

 

 

 

8,217

 

Amortization of original issue discount

 

 

1,658

 

 

 

1,516

 

Loss on short-term investments and other

 

 

11

 

 

 

91

 

Loss on repurchase of convertible notes

 

 

3,211

 

 

 

-

 

Gain on disposition of business operations

 

 

(6,614

)

 

 

-

 

Deferred income taxes

 

 

3,923

 

 

 

23

 

Excess tax benefit of stock-based compensation awards

 

 

(3,375

)

 

 

(1,796

)

Stock-based compensation

 

 

6,506

 

 

 

5,089

 

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

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

35

 

 

 

(986

)

Other current and non-current assets

 

 

1,597

 

 

 

(1,093

)

Income taxes payable/receivable

 

 

992

 

 

 

3,338

 

Trade accounts payable and accrued liabilities

 

 

(32,490

)

 

 

(16,140

)

Deferred revenue

 

 

3,785

 

 

 

7,624

 

Net cash provided by operating activities

 

 

10,674

 

 

 

18,936

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,262

)

 

 

(6,695

)

Purchases of short-term investments

 

 

(14,100

)

 

 

(10,085

)

Proceeds from sale/maturity of short-term investments

 

 

30,067

 

 

 

49,470

 

Acquisition of and investments in client contracts

 

 

(1,520

)

 

 

(1,223

)

Proceeds from the disposition of business operations

 

 

8,850

 

 

 

-

 

Net cash provided by investing activities

 

 

18,035

 

 

 

31,467

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

356

 

 

 

396

 

Payment of cash dividends

 

 

(6,529

)

 

 

(5,842

)

Repurchase of common stock

 

 

(18,990

)

 

 

(62,753

)

Payments on acquired asset financing

 

 

-

 

 

 

(829

)

Proceeds from long-term debt

 

 

230,000

 

 

 

150,000

 

Payments on long-term debt

 

 

(1,875

)

 

 

(121,875

)

Repurchase of convertible notes

 

 

(72,619

)

 

 

-

 

Payments of deferred financing costs

 

 

(6,655

)

 

 

(2,692

)

Excess tax benefit of stock-based compensation awards

 

 

3,375

 

 

 

1,796

 

Net cash provided by (used in) financing activities

 

 

127,063

 

 

 

(41,799

)

Effect of exchange rate fluctuations on cash

 

 

1,330

 

 

 

(1,039

)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

157,102

 

 

 

7,565

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

132,631

 

 

 

81,712

 

Cash and cash equivalents, end of period

 

$

289,733

 

 

$

89,277

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for-

 

 

 

 

 

 

 

 

Interest

 

$

3,339

 

 

$

3,441

 

Income taxes

 

 

6,680

 

 

 

3,968

 

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

 


6


CSG SYSTEMS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1. GENERAL

We have prepared the accompanying unaudited condensed consolidated financial statements as of March 31, 2016 and December 31, 2015, and for the quarters ended March 31, 2016 and 2015, in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position and operating results have been included. The unaudited Condensed Consolidated Financial Statements (the “Financial Statements”) should be read in conjunction with the Consolidated Financial Statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in our Annual Report on Form 10-K for the year ended December 31, 2015 (our “2015 10-K”), filed with the SEC. The results of operations for the quarter ended March 31, 2016 are not necessarily indicative of the expected results for the entire year ending December 31, 2016.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements. The preparation of the accompanying Financial Statements in conformity with GAAP 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 periods. Actual results could differ from those estimates.

Reclassifications.  Certain December 31, 2015 amounts have been reclassified to conform to the March 31, 2016 presentation, which are discussed further in the Accounting Pronouncements Adopted section below.

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of three months or less at the date of the purchase to be cash equivalents. As of March 31, 2016 and December 31, 2015, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of March 31, 2016 and December 31, 2015, we had $4.6 million and $5.0 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 Condensed Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”).

Short-term Investments and Other Financial Instruments. Our financial instruments as of March 31, 2016 and December 31, 2015 include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and debt. Because of 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.

Primarily all short-term investments held by us as of March 31, 2016 and December 31, 2015 have contractual maturities of less than two years from the time of acquisition. Our short-term investments as of March 31, 2016 and December 31, 2015 consisted almost entirely of fixed income securities. Proceeds from the sale/maturity of short-term investments for the first quarters of 2016 and 2015 were $30.1 million and $49.5 million, respectively.

7


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 and liabilities measured at fair value (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

79,156

 

 

$

 

 

$

79,156

 

 

$

35,730

 

 

$

 

 

$

35,730

 

Commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,890

 

 

 

63,890

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

56,623

 

 

 

56,623

 

 

 

 

 

 

31,253

 

 

 

31,253

 

Corporate equity securities

 

 

3,024

 

 

 

 

 

 

3,024

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

 

 

 

 

2,763

 

 

 

2,763

 

 

 

 

 

 

2,763

 

 

 

2,763

 

U.S. government agency bonds

 

 

 

 

 

23,245

 

 

 

23,245

 

 

 

 

 

 

16,201

 

 

 

16,201

 

Asset-backed securities

 

 

 

 

 

9,841

 

 

 

9,841

 

 

 

 

 

 

11,443

 

 

 

11,443

 

Total

 

$

82,180

 

 

$

92,472

 

 

$

174,652

 

 

$

35,730

 

 

$

125,550

 

 

$

161,280

 

Valuation inputs used to measure the fair values of our money market funds and corporate equity securities 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 measure 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):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Credit agreement (carrying value including current maturities)

$

140,625

 

 

$

140,625

 

 

$

142,500

 

 

$

142,500

 

2010 Convertible debt (par value)

 

110,000

 

 

 

218,878

 

 

 

150,000

 

 

 

237,900

 

2016 Convertible debt (par value)

 

230,000

 

 

 

246,100

 

 

 

 

 

 

 

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 4 for additional discussion regarding our convertible debt.

 

Accounting Pronouncements Adopted.  In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30).  This ASU 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. This ASU is effective in fiscal years beginning after December 15, 2015 and must be applied retrospectively.  We adopted this ASU retrospectively on January 1, 2016, which resulted in the reclassification of $5.4 million of debt issuance costs from other assets to long-term debt on our December 31, 2015 Balance Sheet.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), requiring that all deferred tax liabilities and assets be classified as noncurrent.  Prior guidance required us to record deferred tax balances as either current or non-current in accordance with the classification of the underlying attributes. This ASU is effective in fiscal years beginning after December 15, 2016, with early adoption permitted and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  We adopted this ASU retrospectively on January 1, 2016, which resulted in a decrease of $18.1 million in current deferred income tax assets, an increase in non-current deferred income tax assets of $9.1 million and a decrease in non-current deferred income tax liabilities of $9.0 million on our December 31, 2015 Balance Sheet.

 

Accounting Pronouncement Issued But Not Yet Effective. The FASB has issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  This ASU is 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.  The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date which defers the effective date of ASU 2014-09 for one year.  The updated accounting guidance is now effective for annual and interim reporting periods in fiscal years beginning after December 15, 2017.  Early adoption is permitted.  An entity may choose to adopt this ASU either retrospectively or through a cumulative effect adjustment as of the start of the first period for which it

8


applies the standard. We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements and our method of adoption.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method.  We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).  This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  This ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The methods of adoption for this ASU vary by amendment. We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.

    

3. LONG-LIVED ASSETS

Goodwill. The changes in the carrying amount of goodwill for the quarter ended March 31, 2016, were as follows (in thousands):

 

January 1, 2016 balance

$

219,724

 

Adjustments related to prior acquisitions

 

(15

)

Effects of changes in foreign currency exchange rates

 

(2,798

)

March 31, 2016 balance

$

216,911

 

Other Intangible Assets. Our intangible assets subject to ongoing amortization consist primarily of client contracts and software. As of March 31, 2016 and December 31, 2015, the carrying values of these assets were as follows (in thousands):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Amount

 

Client contracts

$

127,918

 

 

$

(90,402

)

 

$

37,516

 

 

$

127,628

 

 

$

(87,890

)

 

$

39,738

 

Software

 

130,384

 

 

 

(97,171

)

 

 

33,213

 

 

 

130,189

 

 

 

(95,094

)

 

 

35,095

 

Total

$

258,302

 

 

$

(187,573

)

 

$

70,729

 

 

$

257,817

 

 

$

(182,984

)

 

$

74,833

 

The total amortization expense related to intangible assets for the first quarters of 2016 and 2015 were $5.9 million and $6.9 million, respectively. Based on the March 31, 2016 net carrying value of our intangible assets, the estimated total amortization expense for each of the five succeeding fiscal years ending December 31 are: 2016 – $22.5 million; 2017 – $17.2 million; 2018 – $13.9 million; 2019 – $9.9 million; and 2020 – $5.6 million.

 

 

9


4. DEBT

Our long-term debt, as of March 31, 2016 and December 31, 2015, was as follows (in thousands):

 

 

March 31,

2016

 

 

December 31,
2015

 

Credit Agreement:

 

 

 

 

 

 

 

Term loan, due February 2020, interest at adjusted LIBOR plus 1.75% (combined rate of 2.38% at March 31, 2016)

$

140,625

 

 

$

142,500

 

Less - deferred financing costs

 

(4,424

)

 

 

(4,738

)

Term loan, net of unamortized discounts

 

136,201

 

 

 

137,762

 

$200 million revolving loan facility, due February 2020, interest at adjusted LIBOR plus applicable margin

 

 

 

 

 

Convertible Notes:

 

 

 

 

 

 

 

2016 Convertible Notes – Senior convertible notes; due March 15, 2036; cash interest at 4.25%

 

230,000

 

 

 

 

Less – unamortized original issue discount

 

(15,802

)

 

 

 

Less – deferred financing costs

 

(6,238

)

 

 

 

2016 Convertible Notes, net of unamortized discounts

 

207,960

 

 

 

 

2010 Convertible Notes – Senior subordinated convertible notes; due March 1, 2017; cash interest at 3.0%

 

110,000

 

 

 

150,000

 

Less – unamortized original issue discount

 

(4,609

)

 

 

(7,923

)

Less – deferred financing costs

 

(411

)

 

 

(709

)

2010 Convertible Notes, net of unamortized discounts

 

104,980

 

 

 

141,368

 

 Total debt, net of unamortized discounts

 

449,141

 

 

 

279,130

 

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

 

(114,355

)

 

 

(148,868

)

Long-term debt, net of unamortized discounts

$

334,786

 

 

$

130,262

 

Credit Agreement.

During the three months ended March 31, 2016, we made $1.9 million of principal repayments on our 2015 Term Loan. As of March 31, 2016, our interest rate on the 2015 Term Loan is 2.38% (adjusted LIBOR plus 1.75% per annum), effective through June 30, 2016, and our commitment fee on the unused 2015 Revolver is 0.25%.  As of March 31, 2016, we had no borrowing outstanding on our 2015 Revolver and had the entire $200 million available to us.     

Convertible Notes.

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 will pay 4.25% annual cash interest, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2016.

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. The 2016 Convertible Notes will be convertible at an initial conversion rate of 17.4642 shares of our common stock per $1,000 principal amount of the 2016 Convertible Notes, which is equivalent to an initial conversion price of approximately $57.26 per share of our common stock. 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.

Holders may require CSG 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 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

10


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 CSG provides 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 Indenture related to the 2016 Convertible Notes (“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 Notes Indenture contains customary affirmative covenants, including compliance with terms of certain other indebtedness of the Company over a defined threshold amount.

The net proceeds from the sale of the 2016 Convertible Notes were approximately $223 million after deducting the initial purchasers’ discount and estimated offering expenses payable by us. We used a portion of the net proceeds from the offering of the 2016 Convertible Notes to repurchase approximately $106 million aggregate principal amount of our 2010 Convertible Notes for approximately $199 million (see additional discussion in 2010 Convertible Notes below). The remainder of the net proceeds will be used for general corporate purposes, which may include additional repurchases of outstanding 2010 Convertible Notes.  

The original issue discount (“OID”) related to the 2016 Convertible Notes of $15.9 million, as a result of an effective interest rate of the liability component of 5.63% compared to the cash interest rate of 4.25%, 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.

2010 Convertible Notes.

On March 15, 2016, following completion of the sale of the 2016 Convertible Notes, we repurchased $40 million aggregate principal amount of the 2010 Convertible Notes for a total purchase price of approximately $73 million and recognized a loss on the repurchase of $3.2 million including the write-off of unamortized deferred financing costs and OID. As of March 31, 2016, the principal outstanding on the 2010 Convertible Notes is $110 million.

As the result of our declaring a cash dividend in February 2016 (see Note 8), the previous conversion rate for the 2010 Convertible Notes of 43.5933 shares of our common stock for each $1,000 in principal amount of the 2010 Convertible Notes (equivalent to a conversion price of $22.94 per share of our common stock) has been adjusted to 43.8047 shares of our common stock for each $1,000 in principal amount of the 2010 Convertible Notes (equivalent to a conversion price of $22.83 per share of our common stock).

Prior to September 1, 2016, holders of the 2010 Convertible Notes can convert their securities at any time in the fiscal quarter following the period in which the price of our common stock trades over 130% of the conversion price for at least 20 consecutive trading days in the last 30 trading days of a fiscal quarter.  As of December 16, 2015, the closing price of our common stock exceeded 130% of the conversion price for the required period, thus allowing the 2010 Convertible Notes to be converted at the holder’s option during the quarter beginning January 1, 2016 and ending March 31, 2016.  In addition, as of March 16, 2016, the closing price of our common stock exceeded the 130% of the conversion price for the required period, thus allowing the 2010 Convertible Notes to continue to be convertible at the holder’s option through the quarter ending June 30, 2016.  Accordingly, as of March 31, 2016, we classified the $110 million principal amount of the 2010 Convertible Notes as a current liability and reclassified the difference between the principal amount payable in cash upon conversion and the total settlement value of the 2010 Convertible Notes, or the intrinsic value of the conversion obligation, of approximately $108 million from stockholders’ equity to current portion of long-term debt conversion obligation on our Balance Sheet.

On April 8, 2016, we repurchased approximately $66 million aggregate principal amount of the 2010 Convertible Notes for a total purchase price of approximately $126 million. We will recognize a loss on the repurchase in the second quarter of 2016 of $5.1 million including the write-off of unamortized deferred financing costs and OID.  After this repurchase, the principal outstanding on the 2010 Convertible Notes is approximately $44 million.

Upon any conversion of the 2010 Convertible Notes, we will settle our conversion obligation as follows: (i) we are required to pay cash for 100% of the par value of the 2010 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 any combination of our common stock and cash, at our discretion.

 

 

 


11


5.  RESTRUCTURING AND REORGANIZATION CHARGES

During the first quarters of 2016 and 2015, we recorded restructuring and reorganization charges of ($5.7) million and $0.6 million, respectively.  

In September 2015 we entered into an agreement (the “Agreement”) with certain former management personnel for the sale of our cyber-security business marketed under the Invotas brand.  In February 2016, this business was acquired by a third-party.  Based on the terms of the Agreement, we received additional consideration contingent upon a liquidation event, as defined in the Agreement.  This resulted in an additional gain on the sale of approximately $6.6 million in the first quarter of 2016, which reduces restructuring and reorganization charges.

 

 

6. COMMITMENTS, GUARANTEES AND CONTINGENCIES

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 the date of acceptance 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.

Product 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 March 31, 2016, 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 March 31, 2016. 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. We are not presently a party to any material pending or threatened legal proceedings.

 

 

 


12


7. EARNINGS PER COMMON SHARE

Basic and diluted earnings per common share (“EPS”) amounts are presented on the face of the accompanying Income Statements.

No reconciliation of the basic and diluted EPS numerators is necessary as net income is used as the numerators for all periods presented.  The reconciliation of the basic and diluted EPS denominators related to the common shares is included in the following table (in thousands):

 

 

Quarter Ended
March 31,

 

 

 

2016

 

 

2015

 

 

Basic weighted-average common shares

 

30,762

 

 

 

31,542

 

 

Dilutive effect of restricted common stock

 

732

 

 

 

658

 

 

Dilutive effect of 2010 Convertible Notes

 

1,900

 

 

 

1,093

 

 

Dilutive effect of Stock Warrants

 

278

 

 

 

47

 

 

Diluted weighted-average common shares

 

33,672

 

 

 

33,340

 

 

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 4).

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 8).  

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

 

 

8. STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION PLANS

Stock Repurchase Program. We currently have a stock repurchase program, approved by our Board, authorizing us to repurchase our common stock from time-to-time as market and business conditions warrant (the “Stock Repurchase Program”). During the first quarters of 2016 and 2015 we repurchased 0.3 million shares of our common stock for $9.5 million (weighted-average price of $36.07 per share) and 0.3 million shares of our common stock for $7.0 million (weighted-average price of $27.06 per share), respectively, under a SEC Rule 10b5-1 Plan.  

In March 2015, we entered into an accelerated share repurchase transaction agreement (the “ASR Agreement”) with a counterparty to repurchase $50 million of our common stock. We paid $50 million to the counterparty and received an initial delivery of 1.3 million shares of our outstanding common stock for an aggregate value of approximately $40 million. The remaining amount was recorded as a forward contract indexed to our common stock in additional paid in capital. Final settlement of the transactions under the ASR Agreement occurred in December 2015.  The ASR Agreement met all the applicable criteria for equity classification, and, therefore, was not accounted for as a derivative instrument.  

As of March 31, 2016, the total remaining number of shares available for repurchase under the Stock Repurchase Program totaled 6.8 million shares.

Stock Repurchases for Tax Withholdings. In addition to the above mentioned stock repurchases, during the first quarters of 2016 and 2015, we repurchased and then cancelled 0.2 million shares of common stock for $9.5 million and 0.2 million shares of common stock for $5.8 million, respectively, in connection with minimum tax withholding requirements resulting from the vesting of restricted common stock under our stock incentive plans.

Cash Dividends.  During the first quarter of 2016, the Board approved a quarterly cash dividend of $0.185 per share of common stock, totaling $6.0 million. During the first quarter of 2015, the Board approved a quarterly cash dividend of $0.175 per share of common stock, totaling $5.7 million.  

Warrants.  In 2014, in conjunction with the execution of an amendment to our current agreement with Comcast Corporation (“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 migrate new customer accounts to ACP. The Stock Warrants have a 10-year term and an exercise price of $26.68 per warrant. As of March 31, 2016, approximately 1.0 million Stock Warrants have vested.         

Upon vesting, the Stock Warrants are recorded as a client incentive asset with the corresponding offset to stockholders’ equity.  The client incentive asset related to the Stock Warrants is amortized as a reduction in cloud and related solutions revenues over the

13


remaining term of the Comcast amended agreement.  As of March 31, 2016, we recorded a client incentive asset related to these Stock Warrants of $7.3 million and have amortized $2.4 million as a reduction in cloud and related solutions revenues.  

The remaining unvested Stock Warrants will be accounted for as client incentive assets in the period the performance conditions necessary for vesting have been met.  As of March 31, 2016, none of the Stock Warrants had been exercised.

Stock-Based Awards. A summary of our unvested restricted common stock activity during the first quarter of 2016 is as follows (shares in thousands):

 

Quarter Ended
March 31, 2016

 

 

Shares

 

 

Weighted-
Average Grant Date Fair Value

 

 

Unvested awards, beginning

 

2,124

 

 

$

26.03

 

 

Awards granted

 

462

 

 

 

38.59

 

 

Awards forfeited/cancelled

 

(118

)

 

 

28.22

 

 

Awards vested

 

(674

)

 

 

22.76

 

 

Unvested awards, ending

 

1,794

 

 

$

30.35

 

 

 

Included in the awards granted during the first quarter of 2016 are performance-based awards for 0.1 million restricted common stock shares issued to members of executive management, which vest in equal installments over three years upon meeting either pre-established financial performance objectives or pre-established total shareholder return objectives. The performance-based awards become fully vested upon a change in control, as defined, and the subsequent involuntary termination of employment.

All other restricted common stock shares granted during the first quarter of 2016 are time-based awards, which vest annually over four years with no restrictions other than the passage of time. Certain shares of the restricted common stock become fully vested upon a change in control, as defined, and the subsequent involuntary termination of employment.

We recorded stock-based compensation expense for the first quarters of 2016 and 2015 of $6.5 million and $5.1 million, respectively.

 

 

 

14


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this MD&A should be read in conjunction with the Financial Statements and Notes thereto included in this Form 10-Q and the audited consolidated financial statements and notes thereto in our 2015 10-K.

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 within Part I Item 1A. Risk Factors of our 2015 10-K.  Readers are strongly encouraged to review those sections closely in conjunction with MD&A.

Company Overview

We are one of the world’s largest and most established business support solutions providers primarily serving the communications industry.  Our proven approach and solutions are based on our broad and deep experience in serving clients in the communications industry as their businesses have evolved from a single product offering to a highly complex, highly competitive, multi-product service offering.  Our approach has centered on using the best technology for the various functions required to provide world-class solutions.

Our solutions help service providers streamline and scale operations, introduce and adapt products and services to meet changing consumer demands, and address the challenges and opportunities of a dynamically evolving global business environment.  Our broad suite of solutions helps our clients improve their business operations by creating more compelling product offerings and an enhanced customer experience through more relevant and targeted interactions, while at the same time, more efficiently managing the service provider’s cost structure.  Over the years, we have focused our research and development (“R&D”) and acquisition investments on expanding our solution set to address the ever expanding needs of communications service providers to provide a differentiated, real-time, and personal experience for their consumers.  This extensive suite of solutions includes revenue management, digital services management and monetization, and customer interaction management platforms.  

We generate approximately 70% of our revenues from the North American cable and satellite markets, approximately 20% of our revenues from wireline and wireless communication providers, and the remainder from a variety of other verticals, such as financial services, logistics, and transportation. Additionally, during the three months ended March 31, 2016, we generated approximately 87% of our revenues from the Americas region, approximately 8% of our revenues from the Europe, Middle East and Africa region, and approximately 5% of our revenues from the Asia Pacific region.

We are a S&P Small Cap 600 company.

Management Overview of Quarterly Results

First Quarter Highlights.  A summary of our results of operations for the first quarter of 2016, when compared to the first quarter of 2015, is as follows (in thousands, except per share amounts and percentages):  

 

 

Quarter Ended

 

 

March 31, 2016

 

March 31, 2015

 

Revenues

$

186,226

 

 

$

185,631

 

Operating Results:

 

 

 

 

 

 

 

Operating income

 

41,291

 

 

 

21,893

 

Operating income margin

 

22.2

%

 

 

11.8

%

Diluted EPS

$

0.64

 

 

$

0.28

 

Supplemental Data:

 

 

 

 

 

 

 

Restructuring and reorganization charges

$

(5,741

)

 

$

606

 

Stock-based compensation (1)

 

6,527

 

 

 

5,089

 

Amortization of acquired intangible assets

 

2,195

 

 

 

3,218

 

Amortization of OID

 

1,658

 

 

 

1,516

 

Loss on repurchase of convertible notes

 

(3,211

)

 

 

 

 

 

(1)

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

15


Revenues.  Our revenues for the first quarter of 2016 were $186.2 million, a slight increase when compared to revenues of $185.6 million for the first quarter of 2015. The year-over-year increase in revenues can be primarily attributed to continued strength in our cloud and related solutions revenues, which more than offset unfavorable foreign currency movements of $2.1 million.

Operating Results.  Operating income for the first quarter of 2016 was $41.3 million, or a 22.2% operating income margin percentage, compared to $21.9 million, or a 11.8% operating income margin percentage for the first quarter of 2015, with the improvements mainly attributed to lower operating expenses as a result of the gain on disposition of business operations recorded in our restructuring and reorganization charges, our cost savings initiatives completed throughout 2015, and favorable foreign currency movements.    

Diluted EPS.  Diluted EPS for the first quarter of 2016 was $0.64 compared to $0.28 for the first quarter of 2015, with the increase due mainly to the higher operating income margin, discussed above.  

Cash and Cash Flows.  As of March 31, 2016, we had cash, cash equivalents and short-term investments of $385.2 million, as compared to $240.9 million as of as of December 31, 2015.  The quarterly increase is mainly due to the proceeds from the $230 million of 2016 Convertible Notes we issued in March, reduced by financing costs of approximately $7 million and the repurchase of $40 million aggregate principal amount of the 2010 Convertible Notes for approximately $73 million. Our cash flows from operating activities for the quarter ended March 31, 2016 were $10.7 million.  See the Liquidity section below for further discussion of our cash flows and our long-term debt activity.

Significant Client Relationships

Client Concentration.  A large percentage of our historical revenues have been generated from our three largest clients, which are Comcast, DISH Network Corporation (“DISH”), and Time Warner Cable, Inc. (“Time Warner”).  Revenues from these clients represented the following percentages of our total revenues for the indicated periods:

 

 

Quarter Ended

 

 

March 31,

2016

 

  

December 31,

2015

 

 

March 31,

2015

 

Comcast

 

25

%

 

  

24

%

  

  

23

%

DISH

 

14

%

 

 

13

%

 

 

15

%

Time Warner

 

12

%

 

 

11

%

 

 

11

%

The percentages of net billed accounts receivable balances attributable to our largest clients as of the indicated dates were as follows:

 

As of

 

 

March 31,

2016

 

  

December 31,

2015

 

  

March 31,

2015

 

Comcast

 

25

%

 

 

30

%

 

 

23

%

DISH

 

13

%

 

 

13

%

 

 

14

%

Time Warner

 

8

%

 

 

8

%

 

 

9

%

See our 2015 10-K for additional discussion of our business relationships and contractual terms with the above mentioned significant clients.

Risk of Client Concentration.  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 services, or the scope of services that we provide; or (iii) experience significant financial or operating difficulties, it could have a material adverse effect on our financial condition and results of operations.  

Charter/Time Warner Transaction. In May 2015, Charter Communications, Inc. (“Charter”), our fourth largest client, announced its intent to acquire Time Warner, our third largest client. Charter’s acquisition of Time Warner is currently pending final approval from certain regulators; however, public reports indicate a decision is anticipated in May 2016. It is not possible to predict with certainty whether, and if so in what form or timeframe, this transaction will be consummated.

Should the Time Warner customer accounts currently being serviced by us be acquired by Charter, and Charter decides to combine all customer accounts under the existing Charter contract, then those accounts would be subjected to more favorable volume-tier pricing terms. The anticipated negative effect on revenue and on our near term profitability due to this more favorable volume-tier pricing is estimated to be approximately $5 million for 2016. The ultimate net effect upon our results of operations for 2016 is dependent upon

16


the timing of the closing date of the transaction. Although there are no assurances, we may have the opportunity to offset some or all of this reduction in revenues with future, additional business from Charter.

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.  Those critical accounting policies were determined by considering the 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 goodwill and other long-lived assets; (iii) income taxes; and (iv) loss contingencies.  These critical accounting policies, as well as our other significant accounting policies, are discussed in our 2015 10-K.

Results of Operations

Total Revenues.  Total revenues for the first quarter of 2016 were $186.2 million, a slight increase when compared to $185.6 million for the first quarter of 2015.  The year-over-year increase in revenues can be primarily attributed to continued strength in our cloud and related solutions revenues, which more than offset unfavorable foreign currency movements of $2.1 million.

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

 

 

Quarter Ended
March 31,

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

Cloud and related solutions

$

149,814

 

 

$

143,833

 

Software and services

 

19,178

 

 

 

22,633

 

Maintenance

 

17,234

 

 

 

19,165

 

Total revenues

$

186,226

 

 

$

185,631

 

We use the location of the client as the basis of attributing revenues to individual countries.  Revenues by geographic regions for the first quarters of 2016 and 2015 were as follows (in thousands):

 

 

Quarter Ended
March 31,

 

 

2016

 

 

2015

 

Americas (principally the U.S.)

$

161,824

 

 

$

157,831

 

Europe, Middle East, and Africa

 

15,503

 

 

 

19,475

 

Asia Pacific

 

8,899

 

 

 

8,325

 

Total revenues

$

186,226

 

 

$

185,631

 

Cloud and Related Solutions Revenues.  Cloud and related solutions revenues for the first quarter of 2016 increased 4% to $149.8 million, from $143.8 million for the first quarter of 2015.  The increase in cloud and related solutions revenues is due primarily to the migration of new customer accounts onto ACP, to include Comcast adding approximately two million customer accounts onto ACP during the second half of 2015.  

Additionally, amortization of our client contracts intangible assets related to investments in client contracts (reflected as a reduction of cloud and related solutions revenues) for the first quarters of 2016 and 2015 was $1.3 million.  

Software and Services Revenues.  Software and services revenues for the first quarter of 2016 decreased 15% to $19.2 million, from $22.6 million for the first quarter of 2015. The decrease in software and services revenues can be attributed to the normal fluctuations in project level work completed between quarters, the continued extended sales cycles in our software and professional services business and continued low market demand for large transformational software and service deals, and to a lesser degree, foreign currency movements.

17


Maintenance Revenues.  Maintenance revenues for the first quarter of 2016 were $17.2 million, a 10% decrease when compared to $19.2 million generated in the first quarter of 2015. This decrease is due mainly to the timing of maintenance renewals and related revenue recognition, pricing pressures experienced on maintenance renewals, and foreign currency movements.

Total Expenses.  Our operating expenses for the first quarter of 2016 were $144.9 million, an 11% decrease when compared to $163.7 million for the first quarter of 2015, with the decrease mainly attributed the gain on disposition of business operations recorded in our restructuring and reorganization charges, the cost savings initiatives we completed throughout 2015, and favorable foreign currency movements.  

The components of total expenses are discussed in more detail below.

Cost of Revenues.  See our 2015 10-K for a description of the types of costs that are included in the individual line items for cost of revenues.

Cost of Cloud and Related Solutions (Exclusive of Depreciation).  The cost of cloud and related solutions for the first quarter of 2016 decreased 4%, to $66.2 million, from $69.3 million for the first quarter of 2015.  This decrease is mainly due to cost savings initiatives implemented throughout 2015 and other decreases in certain variable costs, and to a lesser degree, favorable foreign currency movements.  Total cloud and related solutions cost as a percentage of cloud and related solutions revenues for the first quarters of 2016 and 2015 were 44.2% and 48.2%, respectively.  

Cost of Software and Services (Exclusive of Depreciation).  The cost of software and services for the first quarter of 2016 decreased 37%, to $13.4 million, from $21.1 million for the first quarter of 2015.  A large portion of this decrease can be attributed to a $5 million provision recorded in the first quarter of 2015 for estimated cost overruns related to a large software and services implementation project (to be substantially completed in 2016), with the remaining variance due mainly to targeted efficiencies and cost improvements within our professional services practice and favorable foreign currency movements.  Total software and services cost as a percentage of our software and services revenues for the first quarters of 2016 and 2015 were 69.7% and 93.3%, respectively, with the first quarter of 2015 percentage reflective of the negative impact of the large implementation project.

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 for the first quarter of 2016 was $9.9 million, consistent with the first quarter of 2015.  Total cost of maintenance as a percentage of our maintenance revenues for the first quarters of 2016 and 2015 were 57.4% and 51.6%, respectively.  

R&D Expense.  R&D expense for the first quarter of 2016 decreased 8%, to $23.6 million, from $25.7 million for the first quarter of 2015, with the decrease primarily attributed to foreign currency movements and the reassignment of personnel and the related costs previously allocated to development projects to other areas of the business.  As a percentage of total revenues, R&D expense was 12.7% for the first quarter of 2016 compared to 13.9% for the first quarter of 2015.  

Our R&D efforts are focused on the continued evolution of our solutions that enable service providers worldwide to provide a more personalized customer experience while introducing new digital products and services. This includes the continued investment in our business support solutions aimed at improving a providers’ time-to-market for new offerings, flexibility, scalability, and total cost of ownership.  We expect that our R&D investment activities in the near-term will be relatively consistent with previous quarters, with the level of R&D spend highly dependent upon the opportunities that we see in our markets.

SG&A Expense.  SG&A expense for the first quarter was $34.1 million, relatively consistent when compared to $33.4 million for the first quarter of 2015.  Our SG&A costs as a percentage of total revenues for the first quarters of 2016 and 2015 were 18.3% and 18.0%, respectively.

Restructuring and Reorganization Charges.  Restructuring and reorganization charges for the first quarter of 2016 were ($5.7) million as compared to $0.6 million for the first quarter of 2015.  During 2015, we sold our cyber-security business, marketed under the Invotas brand, to certain former management personnel.  In February 2016, the business was acquired by a third-party.  As a result, we have received additional consideration which was contingent upon a liquidation event, resulting in an additional gain on the sale of $6.6 million, which reduces our restructuring and reorganization charges for the first quarter of 2016.

18


Operating Income. Operating income for the first quarter of 2016 was $41.3 million, or 22.2% of total revenues, compared to $21.9 million, or 11.8% of total revenues for the first quarter of 2015.  The increases in operating income and operating income margin percentage are mainly due to the overall reduction in operating expenses discussed above.

Loss on Repurchase of Convertible Notes.  In March 2016, following completion of the sale of the 2016 Convertible Notes discussed below, we purchased $40 million aggregate principal amount of the 2010 Convertible Notes for a total purchase price of approximately $73 million and recognized a loss on the repurchase of $3.2 million.

Income Tax Provision.  The effective income tax rates for the first quarters of 2016 and 2015 were as follows:

 

Quarter Ended
March 31,

 

2016

 

 

2015

 

 

35

%

 

44

%

 

 

The first quarter 2015 effective income tax rate excluded any benefits from R&D tax credits, as they did not receive Congressional approval until the fourth quarter of 2015.  

 

For the full-year 2016 we are currently estimating an effective income tax rate of 36%.  

 

Liquidity

Cash and Liquidity

As of March 31, 2016, our principal sources of liquidity included cash, cash equivalents, and short-term investments of $385.2 million, compared to $240.9 million as of as of December 31, 2015.  We generally invest our excess cash balances in low-risk, short-term investments to limit our exposure to market and credit risks.  

As part of our 2015 Credit Agreement, we have a $200 million senior secured revolving loan facility with a syndicate of financial institutions that expires in February 2020.  As of March 31, 2016, there were no borrowings outstanding on the 2015 Revolver.  The 2015 Credit Agreement contains customary affirmative covenants and financial covenants.  As of March 31, 2016, and the date of this filing, we believe that we are in compliance with the provisions of the 2015 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):

 

 

March 31,

2016

 

 

December 31,
2015

 

Americas (principally the U.S.)

$

345,606

 

 

$

199,117

 

Europe, Middle East and Africa

 

33,051

 

 

 

36,396

 

Asia Pacific

 

6,573

 

 

 

5,423

 

Total cash, equivalents and short-term investments

$

385,230

 

 

$

240,936

 

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.  As of March 31, 2016, we had $4.6 million of cash restricted as to use primarily to collateralize outstanding letters of credit.

Cash Flows From Operating Activities  

We calculate our cash flows from operating activities in accordance with GAAP, beginning with net income, adding back the impact of non-cash items or non-operating activity (e.g., depreciation, amortization, amortization of OID, impairments, deferred income taxes, stock-based compensation, etc.), and then factoring in the impact of changes in operating assets and liabilities.  See our 2015 10-K for a description of the primary uses and sources of our cash flows from operating activities.  

19


Our 2016 and 2015 net cash flows from operating activities, broken out between operations and changes in operating assets and liabilities, for each of the three quarters ended are as follows (in thousands):

 

 

Operations

 

 

Changes in
Operating
Assets and
Liabilities

 

 

Net Cash
Provided by

(Used In) Operating
Activities –
Totals

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

2016:

 

 

 

 

 

 

 

 

 

 

 

March 31

$

36,755

 

 

$

(26,081

)

 

$

10,674

 

 

 

 

 

 

 

 

 

 

 

 

 

2015:

 

 

 

 

 

 

 

 

 

 

 

March 31

$

26,193

 

 

$

(7,257

)

 

$

18,936

 

Cash flows from operating activities for the first quarter of 2016 and 2015 reflect the negative impacts of the payment of the 2015 and 2014 year-end accrued employee incentive compensation. In addition, cash flows from operations for the first quarter of 2016 was negatively impacted by a prospective change in the timing of payment terms for a key vendor related to postage costs.

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 variations in our net cash provided by (used in) 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 2016 and 2015 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 consistently 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.  DBO is calculated by taking the average monthly net trade accounts receivable balance for the period divided by the billings for the period (including non-revenue items).

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

 

2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

$

185,297

 

 

$

(3,647

)

 

$

181,650

 

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

$

183,283

 

 

$

(3,187

)

 

$

180,096

 

 

64

 

As a global provider of software and professional services, a portion of our accounts receivable balance relates to clients outside the U.S.  As a result, 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) us 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.


20


Unbilled Trade Accounts Receivable

Revenue earned and recognized prior to the scheduled billing date of an item is reflected as unbilled accounts receivable.  Our unbilled accounts receivable as of the end of the indicated periods are as follows (in thousands):

 

 

2016

 

 

2015

 

March 31

$

39,236

 

 

$

44,281

 

The unbilled accounts receivable balances above are primarily the result of several transactions with various milestone and contractual billing dates which have not yet been reached.  Unbilled accounts receivable are an inherent characteristic of certain software and professional services transactions and may fluctuate between quarters, as these type of transactions typically have scheduled invoicing terms over several quarters, as well as certain milestone billing events.

Trade Accounts Payable

Trade accounts payable decreased $14.5 million to $28.9 million as of March 31, 2016, from $43.4 million as of December 31, 2015, due primarily to a prospective change in the timing of payment terms for a key vendor related to postage costs.

Accrued Employee Compensation

Accrued employee compensation decreased $16.1 million in the first quarter of 2016 to $43.5 million as of March 31, 2016, from $59.6 million as of December 31, 2015, due primarily to the payment of the 2015 employee incentive compensation that was fully accrued at December 31, 2015, offset to a certain degree by the accrual for the 2016 employee incentive compensation.

Accrued employee compensation decreased $10.5 million in the first quarter of 2015 to $40.9 million as of March 31, 2015, from $51.4 million as of December 31, 2014 due primarily to: (i) the payment of 2014 employee incentive compensation that was fully accrued at December 31, 2014, offset to a certain degree by the accrual for the 2015 employee incentive compensation; and (ii) the timing of payment of employee wages and other benefits.

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.  

Purchases/Sales of Short-term Investments.  For the first quarters of 2016 and 2015, we purchased $14.1 million and $10.1 million, respectively, and sold (or had mature) $30.1 million and $49.5 million, respectively, of short-term investments. We continually evaluate the appropriate mix of our investment of excess cash balances between cash equivalents and short-term investments in order to maximize our investment returns and will likely purchase and sell additional short-term investments in the future.

Property and Equipment/Client Contracts.  Our capital expenditures for the first quarters of 2016 and 2015, for property and equipment, and investments in client contracts were as follows (in thousands):

 

 

Quarter Ended

March 31,

 

 

2016

 

 

2015

 

Property and equipment

$

5,262

 

 

$

6,695

 

Client contracts

 

1,520

 

 

 

1,223

 

Our property and equipment expenditures for these periods consisted principally of investments in: (i) computer hardware, software, and related equipment; and (ii) statement production equipment.

Our investments in client contracts for these periods relate primarily to deferral of costs related to conversion/set-up services provided under long-term service contracts.

Proceeds from the Disposition of Business Operations.  In the first quarter of 2016, we received additional cash proceeds totaling $8.9 million related to the sale of our cyber-security business marketed under the Invotas brand.  The proceeds were contingent on a liquidation event, as defined in the sale agreement.  

21


Cash Flows From Financing Activities

Our financing activities typically consist of activities associated with our common stock and our long-term debt.  

Cash Dividends Paid on Common Stock.  During the first quarters of 2016 and 2015, the Board approved dividend payments totaling $6.0 million and $5.7 million, respectively.  During the first quarters of 2016 and 2015, we paid dividends of $6.5 million and $5.8 million, respectively (with the additional amounts attributed to dividends for incentive shares paid upon vesting).

Repurchase of Common Stock.  During the first quarters of 2016 and 2015, we repurchased approximately 0.3 million shares of our common stock during each period under the guidelines of our Stock Repurchase Program for $9.5 million and $7.0 million, respectively. Additionally in the first quarter of 2015, we entered into an ASR Agreement to repurchase $50 million of our common stock, which was paid to a counterparty in March 2015.  

Outside of our Stock Repurchase Program, during the first quarters of 2016 and 2015, we repurchased from our employees and then cancelled approximately 0.2 million shares of our common stock during each period for $9.4 million and $5.8 million, respectively, in connection with minimum tax withholding requirements resulting from the vesting of restricted common stock under our stock incentive plans.

Long-term Debt.  During the first quarter of 2016, we completed an offering of $230 million of 4.25% senior subordinated convertible notes due March 15, 2036 (the “2016 Convertible Notes”), paid $6.7 million of deferred financing costs, and repurchased $40 million aggregate principal amount of the 2010 Convertible Notes for a total purchase price of approximately $73 million.  

During the first quarter of 2015, we amended our 2012 Credit Agreement and as a result, we repaid the outstanding principal balance of $120.0 million and borrowed $150.0 million under the 2015 Credit Agreement, resulting in a net increase of available cash of $30 million.  As part of the refinancing, we paid $2.7 million of deferred financing costs.  

Additionally, during the first quarters of 2016 and 2015, we made principal repayments of $1.9 million during each period, respectively. See Note 4 to our Financial Statements for additional discussion of our long-term debt.

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 March 31, 2016, we had cash, cash equivalents, and short-term investments of $385.2 million, of which approximately 88% is in U.S. Dollars and held in the U.S. We have $4.6 million of restricted cash, 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.

Cash and short-term investments increased of $144 million from December 31, 2015.  This increase relates mostly to timing matters around our refinancing of our 2010 Convertible Notes during the first quarter, summarized as follows, with further details discussed below in Long-Term Debt:

 

o

In March 2016, we made the decision to refinance our 2010 Convertible Notes with the issuance of $230 million dollars of the 2016 Convertible Notes.  

 

o

To date, we have used $199 million of the proceeds from the 2016 Convertible Notes to repurchase close to 70% of our previously outstanding aggregate principal amount of the 2010 Convertible Notes, leaving about 30% of the aggregate principal outstanding, which had a settlement value of approximately $87 million on May 2, 2016.

 

o

We intend to monitor and evaluate how best to settle this remaining aggregate principal amount, which has a maturity date of March 1, 2017.  

Our decision to refinance our 2010 Convertible Notes was driven by various market and strategic business considerations, and provided us with the following benefits:

 

o

First, we have replaced a significant portion of our capital structure that is scheduled to mature in March 2017, with another high quality convertible debt instrument that has its first put/call date six years out.  

 

o

Second, this will allow us to eliminate the substantial EPS dilution related to the 2010 Convertible Notes as they are retired, and

22


 

o

Finally, this refinancing event solidifies our capital structure at a reasonable cost, providing us with a strong capital base and continued access to liquidity, which provides us with options to invest in 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. As of March 31, 2016, we had a $200 million revolving loan facility, the 2015 Revolver, with a syndicate of financial institutions.  As of March 31, 2016, we had no borrowing outstanding on our 2015 Revolver and had the entire $200 million available to us.  The 2015 Credit Agreement provides us with additional capital capacity, and greater flexibility to manage our capital structure over the next five years. Our long-term debt obligations are discussed in more detail in Note 4 to our Financial Statements.

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 March 31, 2016, we had 6.8 million shares authorized for repurchase remaining under our Stock Repurchase Program.  Our 2015 Credit Agreement places certain limitations on our ability to repurchase our common stock.  

During the first quarter of 2016, we repurchased 0.3 million shares of our common stock for $9.5 million (weighted-average price of $36.07 per share).  

Under our Stock Repurchase Program, we may repurchase shares in the open market or a privately negotiated transaction, including through an ASR plan or under a SEC Rule 10b5-1 plan.  The actual timing and amount of the share repurchases will be dependent on the then current market conditions and other business-related factors.  Our common stock repurchases are discussed in more detail in Note 8 to our Financial Statements.

 

·

Cash Dividends. During the first quarter of 2016, the Board declared dividends totaling $6.0 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 Boards’ approval.

 

·

Acquisitions. 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.

 

·

Capital Expenditures. During the first quarter of 2016, we spent $5.3 million on capital expenditures. At this time, we expect our 2016 capital expenditures to be relatively consistent with that of 2015. As of March 31, 2016, we have made no significant capital expenditure commitments.

 

·

Investments in Client Contracts. In the past, we have provided incentives to new or existing clients to convert their customer accounts to, or retain their customer’s accounts on, our customer care and billing solutions. During the first quarter of 2016, we made investments in client contracts of $1.5 million. As of March 31, 2016, we had commitments to make $1.5 million of client incentive payments in 2016.

We have issued stock warrants to Comcast (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 migrate 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.  As of March 31, 2016, approximately 1 million Stock Warrants had vested based on the terms of the Warrant Agreement, and none of these Stock Warrants have been exercised to date.  The Stock Warrants are discussed in more detail in Note 8 to our Financial Statements.  

 

·

Long-Term Debt. As discussed above, in March 2016, we completed an offering of $230 million of 4.25% senior subordinated convertible notes due March 15, 2036 (the 2016 Convertible Notes).  As of March 31, 2016, our long-term debt consisted of the following:  (i) 2016 Convertible Notes with a par value of $230 million; ii) 2010 Convertible Notes with a par value of $110.0 million; and (ii) 2015 Credit Agreement term loan borrowings of $140.6 million.

2016 Convertible Notes

The net proceeds from the sale of the 2016 Convertible Notes were approximately $223 million after deducting the initial purchasers’ discount and estimated financing costs payable by us.  We used a portion of the net proceeds from the offering of the 2016 Convertible Notes to repurchase approximately $106 million aggregate principal amount of our 2010 Convertible Notes in two separate transactions in March and April 2016 for a total purchase price of approximately $199 million.  After these repurchases, the remaining aggregate principal outstanding on the 2010 Convertible Notes is

23


approximately $44 million.  The remainder of the net proceeds will be used for general corporate purposes, which may include additional repurchases of outstanding 2010 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.

2010 Convertible Notes

Prior to September 1, 2016, holders of the 2010 Convertible Notes can convert their securities at any time in the fiscal quarter following the period in which the price of our common stock trades over 130% of the conversion price for the last 20 consecutive trading days in the last 30 trading days of a fiscal quarter.  As of March 16, 2016, the closing price of our common stock exceeded 130% of the conversion price for the required period, thus allowing the 2010 Convertible Notes to be converted at the holder’s option through the quarter ending June 30, 2016.

Upon any conversion of the 2010 Convertible Notes, we will settle our conversion obligation as follows:  (i) we are required to pay cash for 100% of the par value of the 2010 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 any combination of our common stock and cash, at our discretion.  As of May 2, 2016 and based on our May 2, 2016 closing stock price of $45.08 per share, the $44 million principal amount of the 2010 Convertible Notes would have had a total settlement value of approximately $87 million.  Given the current market value of the 2010 Convertible Notes exceeds the value holders would receive upon conversion if our common stock remains at the current levels, we believe that holders may not have a significant economic incentive to convert at this time.  However, there can be no assurances as to the conversion decisions made by the holders during the conversion period.  If none of the 2010 Convertible Notes are converted or repurchased prior to maturity, we expect our debt service cash outlay for the next twelve months for the 2010 Convertible Notes will be $1.2 million of interest payments, with the remaining aggregate principal of $44 million due March 1, 2017.

2015 Credit Agreement

Our 2015 Credit Agreement mandatory repayments and the cash interest expense (based upon current interest rates) for the next twelve months is $9.4 million, and $3.8 million, respectively. We have the ability to make prepayments on our 2015 Credit Agreement without penalty.  

Our long-term debt obligations are discussed in more detail in Note 4 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 2015 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 12 months. We also believe we could obtain additional capital through other debt sources which may be available to us if deemed appropriate.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices. As of March 31, 2016, 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 rates on our 2016 Convertible Notes and our 2010 Convertible Notes are 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 2015 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 4 to our Financial Statements for further details of our long-term debt.

A hypothetical adverse change of 10% in the March 31, 2016 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 March 31, 2016 and December 31, 2015 were $289.7 million and $132.6 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

24


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 March 31, 2016 and December 31, 2015 were $95.5 million and $108.3 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.

Long-Term Debt.  The fair value of our convertible debt is exposed to market risk.  We do not carry 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 March 31, 2016, the fair value of the 2016 Convertible Notes and the 2010 Convertible Notes was estimated at $246.1 million and $218.9 million, respectively, 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 first quarter of 2016, we generated approximately 91% 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 March 31, 2016 and December 31, 2015, 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):

 

 

  

March 31, 2016

 

  

December 31, 2015

 

 

  

Monetary
Liabilities

 

 

Monetary
Assets

 

  

Monetary
Liabilities

 

 

Monetary
Assets

 

Pounds sterling

  

$

-

 

 

$

3,782

  

  

$

-

 

 

$

2,646

  

Euro

  

 

(82

)

 

 

13,482

  

  

 

(179

 

 

10,063

  

U.S. Dollar

  

 

(131

)

 

 

19,165

  

  

 

(346

 

 

18,551

  

Other

  

 

(77

)

 

 

3,712

  

  

 

(53

 

 

3,709

  

Totals

  

$

(290

)

 

$

40,141

  

  

$

(578

 

$

34,969

  

A hypothetical adverse change of 10% in the March 31, 2016 exchange rates would not have had a material impact upon our results of operations based on the monetary assets and liabilities as of March 31, 2016.

 

 

Item 4. Controls and Procedures

(a) 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) 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), to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Based on that evaluation, the CEO and CFO concluded that there has been no such change during the quarter covered by this report.


25


CSG SYSTEMS INTERNATIONAL, INC.

PART II. OTHER INFORMATION

 

Item 1. 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.  We are not presently a party to any material pending or threatened legal proceedings.

 

Item 1A. Risk Factors

A discussion of our risk factors can be found in Item 1A.  Risk Factors in our 2015 Form 10-K.  

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to purchases of company common stock made during the first quarter of 2016 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)

 

January 1 – January 31

 

126,674

 

 

$

34.46

 

 

 

125,603

 

 

 

6,934,251

 

February 1 – February 29

 

291,174

 

 

 

37.89

 

 

 

98,398

 

 

 

6,835,853

 

March 1 – March 31

 

89,571

 

 

 

40.50

 

 

 

40,057

 

 

 

6,795,796

 

Total

 

507,419

 

 

$

37.49

 

 

 

264,058

 

 

 

 

 

 

(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 8 to our Financial Statements for additional information regarding our share repurchases.

 

Item 3. Defaults Upon Senior Securities

None

 

Item 4. Mine Safety Disclosures

None

 

Item 5. Other Information

None

 

Item 6. Exhibits

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

 

 

 

26


SIGNATURES

Pursuant to the requirements 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.

Dated: May 6, 2016

 

CSG SYSTEMS INTERNATIONAL, INC.

 

/s/ Bret C. Griess 

Bret C. Griess

Chief Executive Officer

(Principal Executive Officer)

 

/s/ Randy R. Wiese

Randy R. Wiese

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

 

/s/ Rolland B. Johns

Rolland B. Johns

Chief Accounting Officer

(Principal Accounting Officer)

 

 

 

 

27


CSG SYSTEMS INTERNATIONAL, INC.

INDEX TO EXHIBITS

 

Exhibit
Number

 

Description

10.22T*

 

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

10.22U*

 

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

10.23AQ

 

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

10.24BA*

 

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

10.84

 

Forms of Agreement for Equity Compensation

31.01

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02

 

Certification 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

 

*

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.

 

 

28

Pages where confidential treatment has been requested are stamped “Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission,” and places where information has been redacted have been marked with (***).

Exhibit10.22T

 

NINETEENTH AMENDMENT

TO THE

CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT

BETWEEN

csg SYSTEMS, INC.

AND

COMCAST CABLE COMMUNICATIONS MANAGEMENT, LLC

 

 

This NINETEENTH AMENDMENT (the “Amendment”) is made by and between CSG Systems, Inc. (“CSG”) and Comcast Cable Communications Management, LLC (“Customer”). The Effective Date of this Amendment is the date last signed below.  CSG and Customer entered into a certain CSG Master Subscriber Management System Agreement (CSG document #2501940) with an effective date of March 1, 2013 (the “Agreement”) and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the Parties, any subsequent reference to the Agreement between the Parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms.

 

CSG and Customer agree to the following:

 

1.

(a)Customer desires to utilize the services of CSG’s Professional Services Group to design, develop, and implement a custom rules engine (“CRE”) that will trigger alerts and enforce specific scheduling rules when Customer Account Executives are processing a work order in ACSR® that has been split into *** (*) separate jobs in order to be able to assign multiple technicians to the order.

 

 

(b)

As of the Amendment Effective Date, Schedule F, Fees, Section IV. Ancillary Products and Services, Subsection A. Titled “Ancillary services for Non-Rated Video and Non-Rated High-Speed Data and Residential Voice Services” is hereby amended to add a new Subsection 16 titled “XH Multi-tech Orders Custom Rules Engine” as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

16. XH Multi-Tech Orders Custom Rules Engine (Note 1)

 

 

a)  Maintenance Fee (Note 2) (Note 3)

******

$********

Note 1: Design, development and implementation services and lead times will be set forth in a mutually agreeable Statement of Work (CSG document number 4108295).

Note 2: The Maintenance Fee is limited ** *********** (**) ***** per ****.  Additional fees will be charged for ***** exceeding this ****** limit and will be set forth in a separate Statement of Work or Letter of Authorization

Note 3:  The ****** Maintenance Fee covers post deployment support, including ********* ********** ********* *** ********* Customer ******** ********, CSG ********* ******* *** ********* ******* ******** *********.  CSG will be responsible for resolution of CRE defects.  Future enhancement and changes to the CRE will be set forth in a mutually agreeable Statement of Work.  Future enhancements include, but are not limited to, ******** *** *** ** ******* **** ******* ***** **** *****.  Maintenance is intended to address production issues only and does not include pre-release testing, or any changes to the CRE required by the use of new features, functions, products, or substantive configuration changes.

 

The fees set forth in the fee table above are subject to increase pursuant to Section 5.4, Adjustment to Fees, of the Agreement.

 

 



***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

 

IN WITNESS WHEREOF the parties hereto have caused this Amendment to be executed by their duly authorized representatives.

 

COMCAST CABLE COMMUNICATIONS MANAGEMENT, LLC (“CUSTOMER”)

 

CSG SYSTEMS, INC. (“CSG”)

 

By: /s/ Jeur Abeln

 

By:  /s/ Joseph T. Ruble

 

Name: Jeur Abeln

 

Name:  Joseph T. Ruble

 

Title:  Senior Vice President Procurement

 

Title:  EVP, CAO & General Counsel

 

Date:  2-23-2016

 

Date:  22 Feb 2016

 

 

 

2 / 2

 

Pages where confidential treatment has been requested are stamped “Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission,” and places where information has been redacted have been marked with (***).

Exhibit10.22U

 

TWENTIETH AMENDMENT

TO THE

CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT

BETWEEN

CSG SYSTEMS, INC.

AND

COMCAST CABLE COMMUNICATIONS MANAGEMENT, LLC

 

 

This TWENTIETH AMENDMENT (the “Amendment”) is made by and between CSG Systems, Inc. (“CSG”) and Comcast Cable Communications Management, LLC (“Customer”). The Effective Date of this Amendment is the date last signed below.  CSG and Customer entered into a certain CSG Master Subscriber Management System Agreement (CSG document #2501940) with an effective date of March 1, 2013 (the “Agreement”) and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the Parties, any subsequent reference to the Agreement between the Parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms.

 

 

CSG and Customer agree to the following as of the Effective Date:

 

1.

(a)Customer desires to use and CSG agrees to provide CSG’s StatHub service pursuant to the terms of the Agreement and as further described in Attachment 1, attached hereto and incorporated herein by reference, and, in accordance with the terms set forth in Attachment 1.

 

 

(b)

Schedule C of the Agreement entitled "Recurring Services" is hereby amended by adding the following to the list of Services:

 

CSG StatHub………..…………………………………………………………..…………….…Exhibit C-33

 

 

(c)

Additionally, Schedule C, "Recurring Services," is hereby amended by adding Exhibit C-33, "CSG StatHub," attached to this Amendment at Attachment 1, and incorporated herein by reference.

 

 

(d)

As of the Amendment Effective Date, Schedule F, Fees, Section IV. Ancillary Products and Services, Subsection A. Titled “Ancillary services for Non-Rated Video and Non-Rated High-Speed Data and Residential Voice Services” is hereby amended to add a new Subsection 16. titled “CSG StatHub,” as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

16.  CSG StatHub

 

 

a)Start-up (Note 1) (Note 2)

********

******

b)Support and Maintenance Fee (Note 4)

*******

(Note 3)

Note 1: The specific terms for Customer’s initial Start-up and Support Fees for the statistical data associated with CSG SmartLink® BOS, SSID and ENI Services are set forth in that certain “Letter of Authorization For: StatHub” executed by CSG and Customer to be effective as of April 15, 2015 (CSG document no. 4104822).

Note 2:  Start-up services, including development and associated fees, for future functionality to the CSG StatHub tool shall be set forth in mutually agreed Statements of Work.

Note 3: CSG shall provide *** (**) ***** of support per *****.  Customer shall pay for the *** (**) ***** of CSG support using ******* ***** from ********’* ******* ********** **** as defined in the Agreement and therefore Customer’s ****** ******* ********** shall be decremented by *** (**) ***** each ***** Customer is using this Service.  Any unused service hours for support not used in any given ***** shall be *********.  Additional fees will be invoiced for hours exceeding this ******* limit and will be set forth in a separate Statement of Work or Letter of Authorization.


***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

Note 4:  The ******* support fee consists of ***** ***** **** *** ******** ********, ******** ************ and ****** *****.

 

 

(e)

StatHub is a **** *** business function for business continuity plans (BCP) and disaster recovery purposes.  Consequently, Attachment A to Exhibit C-1 of the Agreement titled “CSG Systems, Inc. Business Continuity/Disaster Recovery Plan” is amended to list CSG StatHub under the list of services with BCP coverage as **** ***.

 

 

2.

(a)Customer desires to use, and CSG desires to provide to Customer, the CSG Vantageâ Plus reporting application pursuant to the terms of the Agreement and as further described in Attachment 2, attached hereto and incorporated herein by reference, and, in accordance with the terms set forth in Attachment 2.

 

 

(b)

Schedule C of the Agreement entitled “Recurring Services” is hereby amended by adding the following to the list of Services:

 

CSG Vantage® Plus………………………………………………………………………..Exhibit C-34

 

 

(c)

Additionally, Schedule C, “Recurring Services,” is hereby amended by adding Exhibit C-34, “CSG Vantage® Plus,” attached to this Amendment at Attachment 2, and incorporated herein by reference.

 

 

(d)

Customer desires to receive, and CSG agrees to provide to Customer, ******* (**) Vantage Plus relational report tables.

 

 

(e)

As of the Amendment Effective Date, Schedule F, Section IV. Ancillary Products and Services, Subsection A. titled “Ancillary Services for Non-Rated Video and Non-Rated High-Speed Data and Residential Voice Services,” is hereby amended to add a new Subsection 17. titled “CSG Vantage® Plus Relational Report Tables,” as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

17.CSG Vantage® Plus Relational Report Tables

 

 

a)Implementation fee (Note 1)

********

*****

b)Vantage Plus Relational Report Table support fee (per ******, per ********)

(Note 2)

*******

$******

Note 1: Design, development and implementation services and lead times will be set forth in a mutually agreeable Statement of Work.

Note 2:  ******* (**) report minimum per ********.

 

The fees set forth in the fee table above are subject to increase pursuant to Section 5.4, Adjustment to Fees, of the Agreement.

 

3.

(a)Customer has requested, and CSG has developed based upon Customer’s specifications, a process to support the processing of recurring payment files provided to CSG by Customer (such process to be known as “Comcast Recurring Payment Gateway (RPG)”).

 

 

(b)

As of the Amendment Effective Date, Schedule F, Section IV. Ancillary Products and Services, Subsection A. titled “Ancillary Services for Non-Rated Video and Non-Rated High-Speed Data and Residential Voice Services,” is hereby amended to add a new Subsection 18. titled “Comcast Recurring Payment Gateway (RPG),” as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

18.Comcast Recurring Payment Gateway (RPG)

 

 

a)Implementation fee (Note 1)

********

*****

b)Support Fee (Note 2) (Note 3)

*******

$*********

Note 1: Design, development and implementation services and lead times will be set forth in a mutually agreeable Statement of Work.

Note 2:  The ******* Support Fee is limited to *** ******* ***** (***) ***** per *****.  Of the *** ******* ***** (***) ***** included in the ******* Support Fee, ******* (**) ***** shall be utilized for the ***** ****** ********* ******* ** *** ********** of ********* ******* *****, and, thereafter, an ********** **** (*) ***** will be utilized per ******

2 / 7

 


***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

***** until the *** ******* ***** (***) ***** per ***** are utilized.  Additional fees will be charged for hours exceeding this ******* limit and will be set forth in a separate Statement of Work or Letter of Authorization.

Note 3:  The ******* Support Fee covers:

·***** work effort/level of effort to monitor/trouble shoot the ***** ***** related to the RPG project.

 

·

**** work effort to ensure the distribution of the ***** runs on schedule on a ***** basis and includes monitoring and troubleshooting for the ***** files.

 

 

·

Maintenance/troubleshooting for ***** and *********.  Includes support of Customer questions and internal questions as well as release testing.

 

 

The fees set forth in the fee table above are subject to increase pursuant to Section 5.4, Adjustment to Fees, of the Agreement.

 

4.

Upon the Effective Date, Schedule P to the Agreement shall be deleted in its entirety and replaced with the new Schedule P attached to this Amendment at Attachment 3, and incorporated herein by this reference.

 

5.

(a)Customer desires to utilize the services of CSG’s Professional Services Group to design, develop, and implement account transfers custom rules engine edits (“CRE”) solution relating to (1) out of system transfer notification, (2) enforcement of bill stop and date match on account transfer disconnect orders, and (3) various transfer edits.

 

 

(b)

As of the Amendment Effective Date, Schedule F, Fees, Section IV. Ancillary Products and Services, Subsection A. Titled “Ancillary services for Non-Rated Video and Non-Rated High-Speed Data and Residential Voice Services” is hereby amended to add a new Subsection 19. titled “Account Transfers Custom Rules Engine Edits,” as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

19. Account Transfers Custom Rules Engine Edits (Note 1)

 

 

a)Support/Maintenance Level 1 (Individual fields, small amount of logic)

(Note 2) (Note 4)

******

$********

 

b)  Support/Maintenance Level 2 (Multiple fields, screens, and logic, small configuration changes (Note 3) (Note 4)

******

$*********

Note 1: Design, development and implementation services and lead times will be set forth in a mutually agreeable Statement of Work between the parties (CSG document number 4109006).  In the foregoing Statement of Work, Customer has elected to receive and CSG has agreed to provide *** (*) ***** of Support/Maintenance Level * and *** (*) **** of Support/Maintenance Level * for a total annual amount of $*********, which shall be in addition to the fees provided in the Statement of Work.

Note 2:  The Support/Maintenance Level * fee is limited to ************ (**) ***** per ****.  Additional fees will be charged for hours exceeding this ****** limit and will be set forth in a separate Statement of Work or Letter of Authorization.

Note 3:  The Support/Maintenance Level * fee is limited to *********** (**) ***** per ****.  Additional fees will be charged for ***** exceeding this ****** limit and will be set forth in a separate Statement of Work or Letter of Authorization

Note 4:  The ****** Support/Maintenance Level * and Level * fees covers post deployment support, including ********* ********** ********* and ********* ******** ******** ********, CSG ********* ******* and ********* ******* ******** *********.  CSG will be responsible for resolution of Account Transfers CRE defects.  Future enhancement and changes to the Account Transfers CRE will be set forth in a mutually agreeable Statement of Work.  Future enhancements include, but are not limited to, ******** *** ******* ********* *** ** ******* **** ******* ***** **** *****.  Maintenance is intended to address production issues only and does not include pre-release testing, or any changes to the Account Transfers CRE required by the use of new features, functions, products, or substantive configuration changes.

 

The fees set forth in the fee table above are subject to increase pursuant to Section 5.4, Adjustment to Fees, of the Agreement.


3 / 7

 


***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

6.

(a)Customer desires to increase its Statement Express on-line statement archival, and CSG agrees to provide the increase of Customer’s archival, pursuant to the terms of the Agreement. 

 

 

(b)

As of the Amendment Effective Date, Schedule F, Fees, CSG SERVICES, Section III., Payment Procurement, Subsection A., Direct Solutions (print and mail), Subsection X. titled “Statement Express Archival” is hereby amended to add the following:

 

Description of Item/Unit of Measure

Frequency

Fee

2.*********** (**) ****** of On-Line Statement Archival and Access (per **** *****) (Note27) (Note 28)

*******

$*******

Note 27: Design, development and implementation services and lead times will be set forth in a mutually agreeable Statement of Work.

Note 28:  A Data Frame represents a ******* ********* **** or ****** ****** *** *** *********.  Example: A **** physical page statement would equal **** **** ******.  The ******* Data Frame charge is assessed against the ********* **** ***** ***** ********* **** ****** *****, **** ** ***** and ***** *****.

 

The fees set forth in the fee table above are subject to increase pursuant to Section 5.4, Adjustment to Fees, of the Agreement.

 

7.

(a)Customer desires to have access to *** or **** new training system principal agent(s) (“SPA”) in Customer’s QAVA test environment, and CSG agrees to provide the new SPA(s) as part of an environment refresh process, pursuant to the terms of the Agreement.

 

 

(b)

As of the Amendment Effective Date, Schedule F, Section IV. Ancillary Products and Services, Subsection A. titled “Ancillary Services for Non-Rated Video and Non-Rated High-Speed Data and Residential Voice Services,” is hereby amended to add a new Subsection 20. titled “Environment Refresh Process” as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

20.Environment Refresh Process (Note 2)

 

 

a)Support/Maintenance Fees (*** ***) (Note 1)

*********

$*********

Note 1: Design, development, set-up, configuration and implementation services and lead times will be set forth in a mutually agreeable Statement of Work.

 

·

Note 2:  Customer may utilize the refresh capabilities up to a maximum of **** (*) times per ******** ****.  Any additional requests will require a mutually agreeable Statement of Work between the parties.  Refreshes cannot be carried over to the **** ******** ****.”

 

 

The fees set forth in the fee table above are subject to increase pursuant to Section 5.4, Adjustment to Fees, of the Agreement.

 

THIS AMENDMENT is executed on the day and year last signed below (“Effective Date”).

 

COMCAST CABLE COMMUNICATIONS MANAGEMENT, LLC (“CUSTOMER”)

 

CSG SYSTEMS, INC. (“CSG”)

 

By: /s/ Jeur Abeln

 

By:  /s/ Joseph T. Ruble

 

Name: Jeur Abeln

 

Name:  Joseph T. Ruble

 

Title:  Senior Vice President Procurement

 

Title:  EVP, CAO & General Counsel

 

Date:  3-15-2016

 

Date:  11 March 2016


4 / 7

 


***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

ATTACHMENT 1

 

EXHIBIT C-33

CSG StatHub

 

 

CSG StatHub. CSG StatHub (“StatHub”) is a CSG web application that provides Customer with the ability to view operational statistics related to CSG Products and Services transactions. StatHub will provide Customer with access to view the data and queries that are part of the Service. Customer will not have direct access to Customer’s Subscriber data from StatHub. **** (*) Customer users will be allowed StatHub access at any given time.

 

StatHub is not subject to the standard CSG change management process and as such, CSG reserves the right to make changes to StatHub at any time without prior notification to Customer.

 

StatHub supports the ****** ****** and ******* ******* browsers.

 


5 / 7

 


***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

ATTACHMENT 2

 

EXHIBIT C-34

CSG Vantage® Plus

 

CSG Vantageâ Plus.  CSG Vantage Plus is a reporting application that parses CCS® production reports and makes the report data available in Vantage tables for query and analysis purposes. Relational report tables are retained in the Vantage environment for ***** (*), ******** (**), and ********** (**) **** for *****, ******, and ******* generated reports, respectively.

 

 


6 / 7

 


***

Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission.

 

ATTACHMENT 3

 

Schedule P

 

Customer Authorization Schedule

 

CSG Document

Comcast Personnel

Title

Comment

Master Agreement &

Amendments (and all

categories listed below)

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

EVP and Chief Procurement Officer

 

**** *****

SVP Procurement

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

SVP Financial Operations, Technology

   and Engineering

 

SOW/DSOW

**** *****

Senior Vice President, Procurement

 

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

Senior Director of Procurement

   (up to $*******)

 

LOA

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

Director of Billing

Technical Administrator

*** *******

Sr. Director, Billing Contract Management

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

Executive Director of Software

    Development & Engineering

 

SRF

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

Director of Billing

Technical Administrator

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

 

Executive Director of Software

    Development & Engineering

*** *******

Sr. Director, Billing Contract Management

 

IPA

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

Executive Director of Billing Systems

 

*** *******

Sr. Director, Billing Contract Management

 

BRD

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

 

Executive Director of Software

    Development & Engineering

 

*** *******

Sr. Director, Billing Contract Management

 

Billing Disputes

*** *******

Sr. Director, Billing Contract Management

 

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

Director of Business Operations

 

 

 

 

 

7 / 7

 

Exhibit10.23AQ

 

 

FIFTY-FIRST AMENDMENT

TO THE

CSG MaSTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT

BETWEEN

csg SYSTEMS, INC.

AND

DISH NETWORK L.L.C.

 

This FIFTY-FIRST AMENDMENT (this “Amendment”) is made by and between CSG Systems, Inc., a Delaware corporation (“CSG”), and DISH Network L.L.C., a Colorado limited liability company (“Customer”).  This Amendment shall be effective as of the date last signed below (the “Effective Date”).  CSG and Customer entered into a certain CSG Master Subscriber Management System Agreement (Document #2301656) effective as of January 1, 2010 (the “Agreement”), and now desire to further amend the Agreement in accordance with the terms and conditions set forth in this Amendment.  If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control.  Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment shall have the meaning set forth in the Agreement.  Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment.  Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms.

 

CSG and Customer agree as follows as of the Effective Date:

 

1.

Pursuant to the terms of the Fifteenth Amendment to the Agreement, as subsequently further amended by the, Thirty-third and Forty-second Amendments to the Agreement (CSG document numbers 2310222, 2500779 and 2507668, respectively) (each of the Fifteenth, Thirty-third and Forty-second Amendments, the “Interactivate Amendments”), CSG’s Interactivate product was added to the Agreement.  Customer has requested and CSG has agreed that the Interactivate product shall be terminated as of January 14, 2016, as of approximately 2:15 a.m. mountain time (the “Interactivate Termination Date”).

 

2.

Following the Interactivate Termination Date, CSG shall no longer be required to provide and Customer shall no longer have the right to use or be required to pay for Interactivate, except for its use up to and including the Interactivate Termination Date.  The parties agree that Customer shall be responsible for the payment of all fees due and owing to CSG for use of the Interactivate product up to and including the Interactivate Termination Date.

 

3.

The parties agree that all terms and conditions set forth in each of the Interactivate Amendments shall have no force or effect as of the Interactivate Termination Date.

 

IN WITNESS WHEREOF the parties hereto have caused this Amendment to be executed by their duly authorized representatives.

 

DISH Network l.l.c.

CSG SYSTEMS, INC.

 

By:  /s/ Rob Dravenstott

 

By:  /s/ Joseph T. Ruble

 

Name: Rob Dravenstott

 

Name:  Joseph T. Ruble

 

Title:  Senior Vice President and Chief Information

           Officer

 

Title:  EVP, CAO & General Counsel

 

Date:  1/12/16

 

Date:  13 Jan 2016

 

 

CSG #41089641 / 112-16-2015

CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES

 

Pages where confidential treatment has been requested are stamped “Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission,” and places where information has been redacted have been marked with (***).

Exhibit10.24BA

 

ONE HUNDRED SECOND AMENDMENT

TO THE

CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT

BETWEEN

CSG SYSTEMS, INC.

AND

TIME WARNER CABLE INC.

 

This One Hundred Second Amendment (the “Amendment”) is made by and between CSG Systems, Inc., (“CSG”), and Time Warner Cable Inc. (“TWC”).  CSG and TWC entered into a certain CSG Master Subscriber Management System Agreement executed March 13, 2003 (CSG document no. 1926320), and effective as of April 1, 2003, as amended (the “Agreement”), and now desire to further amend the Agreement in accordance with the terms and conditions set forth in this Amendment.  If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control.  Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement.  Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment.  Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms.

 

CSG and TWC agree to the following as of the Effective Date:

 

1.

Customer desires to replace its **** Direct Connection of Data Communications Services with a *** (**) ******** circuit (the "Circuit") in Customer's ********** ***** ******** location.  Customer is responsible for the Circuit and any equipment associated with the Circuit.  CSG will provide the necessary hardware and connectivity to the Circuit and maintenance of such hardware and connectivity.  As a result, Schedule F of the Agreement will be amended to delete Section D to the Data Communications Services section of Schedule F and shall be replaced as follows:

 

Description of Item/Unit of Measure

Frequency

Fee

D.  Direct Connection (Note 1) (Note 2) (Note 5)

 

 

·Direct Connect Installation Fee

********

$**********

·Direct Connect Maintenance and Support Fee (Note 3) (Note 4)

********

$**********

Note 1: Direct Connects must be reviewed and approved by a CSG engineer.

Note 2: Implementation of the Circuit shall be set forth in that certain Statement of Work entitled "Implement Upgrade Direct Connections of Data Communications Services" (CSG document no. 4108937).

Note 3: The ****** Maintenance and Support Fee shall be subject to the annual adjustment to fees, pursuant to Section 5.4 of the Agreement.

Note 4: Upon completion of the implementation of the Circuit as provided in the Statement of Work entitled “Implement Upgrade Direct Connections of Data Communications Services” CSG shall invoice Customer on a ******* ******** basis through ***** *** ****.  Customer and CSG agree the prorated amount shall be based upon the difference between the Direct Connect Maintenance and Support Fee and the previously paid **** Direct Connection of Data Communications Services ********** Maintenance and Support Fee.  Thereafter, CSG will invoice Customer on an ********** basis in accordance with the Agreement.  

Note 5: Customer is responsible for connectivity to the CSG ******** ******** ********.  CSG agrees to provide ********** ********** as requested by Customer which shall not exceed ****** (**) *****.

 

THIS AMENDMENT is executed as of the day and year last signed below (the “Effective Date").

 

TIME WARNER CABLE INC. (“TWC”)

CSG SYSTEMS, INC. (“CSG”)

 

By: /s/ Todd Dolan

By:  /s/ Joseph T. Ruble

 

Name: Todd Dolan

 

Name:  Joseph T. Ruble

 

Title:  Group Vice President

 

Title: EVP, CAO & General Counsel

 

Date:  January 15, 2016

 

Date: 28 Jan 2016

 

This exhibit contains forms of agreements used by the company to grant performance-based restricted stock awards to its executive officers under the company’s 2005 Stock Incentive Plan.   Readers should note that these are forms of agreement only and particular agreements with executive officers and directors may contain terms that differ but not in material respects.

Exhibit 10.84

 

RESTRICTED STOCK AWARD AGREEMENT

 

 

 

Name of Grantee (the “Grantee):  

Date of Restricted Stock Award (the “Award Date”):  

Number of Shares Covered by Restricted Stock Award (the “Award Shares”):  

 

This Restricted Stock Award Agreement (this “Agreement”) is entered into effective on the Date of Restricted Stock Award set forth above (the “Award Date”) by and between CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation (the “Company”), and the Grantee named above (the “Grantee”).

* * *

WHEREAS, the Company has adopted an Amended and Restated 2005 Stock Incentive Plan (the “Plan”) which is administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"); and

WHEREAS, pursuant to the Plan, effective on the Award Date the Committee granted to Grantee a Restricted Stock Award (the “Award”) covering the number of shares of the Common Stock of the Company (the “Common Stock”) set forth above (the “Award Shares”), and the Company is executing this Agreement with Grantee for the purpose of setting forth the terms and conditions of the Award made by the Committee to Grantee effective on the Award Date;

NOW, THEREFORE, in consideration of the premises and the covenants and conditions contained herein, the Company and Grantee agree as follows:

1.Award of Restricted Shares.

(a)The Company hereby confirms the grant of the Award to Grantee effective on the Award Date.  The Award is subject to all of the terms and conditions of this Agreement.

 

 

 

 


 

(b)Promptly after the execution of this Agreement, the Company will cause the transfer agent for the Common Stock or other third-party Plan record keeper designated by the Company (the “Transfer Agent”) to (i) either establish a separate account in its records in the name of Grantee (the “Restricted Stock Account”) and credit the Award Shares to the Restricted Stock Account as of the Award Date or credit the Award Shares to a previously existing Restricted Stock Account of Grantee as of the Award Date and (ii) confirm such actions to Grantee electronically or in writing.  

2.Vesting of Award Shares.

(a)For purposes of this Agreement, "Award Year One" means 201X, "Award Year Two" means 201Y, and "Award Year Three" means 201Z.  Each of Award Year One, Award Year Two, and Award Year Three is an "Award Year".

 

(b)The Award Shares will vest, if at all, in Grantee as follows:

 

 

(i)XXX shares in Award Year One;

 

 

(ii)XXX shares in Award Year Two; and

 

 

(iii)XXX shares in Award Year Three.

 

 

(c)Except as otherwise provided in Section 2(f), vesting of the Award Shares will be based upon the level of attainment by the Company of a combination of the Company's Adjusted Earnings per Share (“EPS”) and the Company's Adjusted Revenue for a particular Award Year, subject to (i) the Committee certification required by Section 2(g) and (ii) Grantee's satisfaction of the continuous employment requirement of Section 2(g).  The Company's Adjusted EPS actually attained for an Award Year will be based on information contained in the Company's audited consolidated statement of income for that Award Year and will be calculated as set forth in Exhibit B to this Agreement.  The Company's Adjusted Revenue actually attained for an Award Year will be based on the total revenues reported in the Company's audited consolidated statement of income for that Award Year with any adjustments required pursuant to Exhibit C to this Agreement.

 

(d)Vesting of the Award Shares for Award Year One will be determined by reference to the point of intersection on the 2016 matrix in Exhibit A to this Agreement of the actual Adjusted EPS for 201X and the actual Adjusted Revenue for 201X, and that point of intersection will establish the percentage (if any) of the Award Shares for Award Year One that vest in the Grantee if both of the conditions set forth in Section 2(f) are satisfied.  Vesting of the Award Shares for Award Year Two and Award Year Three will be determined in a similar manner by reference to the 201Y matrix and the 201Z matrix, respectively, in Exhibit A to this Agreement.  If necessary, the point of intersection on a matrix in Exhibit A to this Agreement will be determined by linear interpolation.  The applicable percentage determined pursuant to this subparagraph (d) will be applied to the Award Shares for the particular Award Year to determine the number of Award Shares that vest in Grantee for such Award Year, rounded to the nearest whole Award share.

 

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(e)If, pursuant to Section 2(c), the Committee certifies in writing that less than 100% of the Performance Goals for the Award Year One or Award Year Two Performance Period has been met, then the remaining percentage of Award Shares subject to vesting for such Performance Period, as shown in the table in Section 2(b), nevertheless may vest in Grantee at the end of a subsequent Performance Period shown in such table if (i) the applicable Performance Goals for such subsequent Performance Period is attained at a higher percentage, (ii) the Committee certifies such attainment in accordance with Section 2(c), and (iii) Grantee has been continuously employed by the Company from the Award Date through the date of such Committee certification.  Solely by way of illustration of the possible operation of this Section 2(e), if the Company's Adjusted EPS for the 201X Performance Period is $X.XX and the Adjusted Revenue for such Performance Period is $XXX.X million, then the Performance Goals for such Performance Period will have been attained at 60%, and 60% of the Award Shares will vest in Grantee for such Performance Period.  Subsequently, if the Company's Adjusted EPS for the 201Y Performance Period is $X.XX and the Adjusted Revenue for such Performance Period is $XXX.X million, as certified by the Committee in accordance with Section 2(c), then the Award Shares which are subject to vesting for both the 201X and 201Y Performance Periods will vest at an 80% attainment in Grantee as long as Grantee has been continuously employed by the Company from the Award Date through the date of such Committee certification.  A similar deferred vesting may occur if the Company attained less than 100% of an applicable Performance Goal for the 201X or 201Y Performance Period, but attains a higher percentage of the applicable Performance Goals for the 201Z Performance Period, the Committee certifies such attainment, and Grantee has been continuously employed by the Company from the Award Date through the date of such Committee certification. 

 

(f)If any Award Shares for a particular Award Year do not vest in Grantee based upon the vesting determination made pursuant to Section 2(e), then such Award Shares will remain in suspense and will vest in Grantee only if, and at the level of Total Shareholder Return (“TSR”) achieved for the Company for a three-year period of 201X through 201Z, in accordance with the following terms.

 

i.

The Company’s three-year TSR will be measured using a reputable, independent provider selected by the Company and approved by the Committee using generally accepted and consistently applied methodologies to calculate the Company’s TSR in comparison to the Russell 2000 Index’s TSR.  If for any reason the Russell 2000 Index does not exist or its TSR is not determinable, then the Committee shall have the exclusive discretion to select a different index for purposes of determining whether the Company’s TSR goal has been achieved.  The Committee may select any then-existing index or to create its own index comprised of companies that it views in its reasonable discretion will achieve the objectives contained herein.

 

ii.

The measurement period used to determine whether the Company’s TSR performance metric has been achieved shall be from December 31, 201W through December 31, 201Z (“TSR Measurement Period”).  

 

iii.

As soon as practicable after December 31, 201Z the Company’s TSR during the TSR Measurement Period shall be compared to the Russell 2000 Index’s TSR during the TSR Measurement Period.  

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iv.

If the Company’s TSR is below the 50th percentile measure of the Russell 2000 Index TSR for the TSR Measurement Period, then the vesting percentage for purposes of this paragraph 2(f) is zero percent (0%).  

 

v.

If the Company’s TSR for the TSR Measurement Period is equal to the 50th percentile measure, but less than the 75th percentile measure of the Russell 2000 Index TSR, then the vesting percentage for purposes of this paragraph 2(f) begins at 50% for the achievement of the 50th percentile measure, and is calculated using linear interpolation towards the 100% vesting percentage at the 75th percentile of the Russell 2000 Index TSR.

 

vi.

If the Company’s TSR is equal to or greater than the 75th percentile measure of the Russell 2000 Index TSR, then the vesting percentage for purposes of this paragraph 2(e) is 100%.  In no event can the vesting percentage pursuant to this paragraph 2(f) exceed 100%.

 

a.

Solely by way of illustration of the possible operation of this Section 2(f): (i) if the Company's TSR for the TSR Measurement Period is XX%, and this measure is at the 45th percentile level of the Russell 2000 Index TSR, the vesting percentage for purposes of this paragraph 2(f) is zero percent (0%); (ii) if the Company's TRS for the TSR Measurement Period is XX%, and this measure is at the 65th percentile level of the Russell 2000 Index TSR, the vesting percentage for  purposes of this paragraph 2(f) is 80%, representing 60% of the linear difference between the 50th and 75th percentile vesting levels; and (iii) if the Company's TRS for the TSR Measurement Period is XX%, and this measure is at the 80th percentile level of the Russell 2000 Index TSR, the vesting percentage for  purposes of this paragraph 2(f) is 100%. Further illustrations of the vesting percentages to be determined pursuant to this paragraph are shown in Exhibit D to this Agreement.

(g)The Performance Goals for an Award Year which have been established by the Committee for purposes of this Agreement are as follows:

 

(i)The attainment by the Company of both Adjusted EPS and Adjusted Revenue for an Award Year in amounts sufficient to fall within the parameters of the matrix for that Award Year in Exhibit A to this Agreement; and

(ii)If Section 2(f) becomes applicable, the attainment of the Company’s TSR as set forth in Section 2(f).

As soon as practicable after the end of each Award Year, the Committee shall certify whether the applicable Performance Goal for that Award Year was attained.  No Award Shares will vest in Grantee for any Award Year (i) unless and until the Committee has certified in writing that an applicable Performance Goal has been attained for that Award Year and (ii) unless Grantee has been continuously employed by the Company from the Award Date through the date of the applicable Committee certification.

 

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(h)If Award Shares have vested in Grantee for a particular Award Year, the failure of the Company to attain a Performance Goal for a subsequent Award Year, or of the failure to attain the Company TSR for the TSR Measurement Period, as indicated in this section paragraph 2(f), will have no effect upon those vested Award Shares.  

 

(i)After Grantee has become vested in any of the Award Shares and, if applicable, after the cancellation of certain of the Award Shares as provided for in Section 12(b) has occurred, the Company will instruct the Transfer Agent to remove all restrictions on the transfer, assignment, pledge, encumbrance, or other disposition of the then remaining vested Award Shares in the Restricted Stock Account.  Grantee thereafter may dispose of such remaining vested Award Shares in Grantee's sole discretion, subject to compliance with securities and other applicable laws and Company policies with respect to dispositions of Company stock, and may request the Transfer Agent to electronically transfer such remaining vested Award Shares to an account designated by Grantee free of any restrictions, subject to any applicable administrative requirements of the Transfer Agent.

 

3.Employment.  

Nothing contained in this Agreement (i) obligates the Company or a Subsidiary to continue to employ Grantee in any capacity whatsoever or (ii) prohibits or restricts the Company or a Subsidiary from terminating the employment of Grantee at any time or for any reason whatsoever.  In the event of a Termination of Employment of Grantee, Grantee will have only the rights set forth in this Agreement with respect to the Award Shares.  For purposes of this Agreement, a “Termination of Employment” of Grantee means the effective time when the employer-employee relationship between Grantee and the Company terminates for any reason whatsoever.  In determining the existence of continuous employment of Grantee by the Company or the existence of an employer-employee relationship between Grantee and the Company for purposes of this Agreement, the term “Company” will include a Subsidiary (as defined in the Plan); and neither a transfer of Grantee from the employ of the Company to the employ of a Subsidiary nor the transfer of Grantee from the employ of a Subsidiary to the employ of the Company or another Subsidiary will be deemed to be a Termination of Employment of Grantee.

 

4.Cancellation of Unvested Award Shares.

Subject to the provisions of Section 15, if applicable, upon a Termination of Employment of Grantee, all of the rights and interests of Grantee in any of the Award Shares which have not vested in Grantee pursuant to Section 2 prior to such Termination of Employment of Grantee automatically will completely and forever terminate; and, at the direction of the Company, the Transfer Agent will remove from the Restricted Stock Account and cancel all of those unvested Award Shares.  

 

5.Dividends and Changes in Capitalization.

If at any time that any of the Award Shares have not vested in Grantee the Company declares or pays any ordinary cash dividend, any non-cash dividend of securities or other property or rights to acquire securities or other property, any liquidating dividend of cash

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or property, or any stock dividend or there occurs any stock split or other change in the character or amount of any of the outstanding securities of the Company, then in such event any and all cash and new, substituted, or additional securities or other property relating or attributable to those unvested Award Shares immediately and automatically will become subject to this Agreement, will be delivered to the Transfer Agent or to an independent Escrow Agent selected by the Company to be held by the Transfer Agent or such Escrow Agent pursuant to the terms of this Agreement (including but not limited to the provisions of Sections 2, 4, and 8), and will have the same status with respect to vesting and transfer as the unvested Award Shares upon which such dividend was paid or with respect to which such new, substituted, or additional securities or other property was distributed. No interest will accrue on any cash or cash equivalents received by the Transfer Agent or such Escrow Agent pursuant to the first sentence of this Section 5. Grantee and the Company agree that the provisions of this Section 5 amend, supersede and/or replace any conflicting provisions contained in any Restricted Stock Award Agreements between the Company and Grantee covering Restricted Stock Awards previously granted to Grantee by the Company.

6.Representations of Grantee.

Grantee represents and warrants to the Company as follows:

(a)Grantee has full legal power, authority, and capacity to execute and deliver this Agreement and to perform Grantee's obligations under this Agreement; and this Agreement is a valid and binding obligation of Grantee, enforceable in accordance with its terms, except that the enforcement of this Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

(b)Grantee is aware of the public availability on the Internet at www.sec.gov of the Company's periodic and other filings made with the United States Securities and Exchange Commission.

(c)Grantee has received a copy of the Plan.

7.Representations and Warranties of the Company.

The Company represents and warrants to Grantee as follows:

(a)The Company is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into this Agreement, to issue the Award Shares to Grantee, and to perform its obligations under this Agreement.

(b)The execution and delivery of this Agreement by the Company have been duly and validly authorized by the Committee; and all necessary corporate action has been taken to make this Agreement a valid and binding obligation of the Company, enforceable in

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accordance with its terms, except that the enforcement of this Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). 

(c)When issued to Grantee as provided for in this Agreement, the Award Shares will be duly and validly issued, fully paid, and non-assessable.

8.Restriction on Sale or Transfer of Award Shares.

None of the Award Shares that have not vested in Grantee pursuant to Section 2 (and no beneficial interest in any of such Award Shares) may be sold, transferred, assigned, pledged, encumbered, or otherwise disposed of in any way by anyone (including a transfer by operation of law); and any attempt by anyone to make any such sale, transfer, assignment, pledge, encumbrance, or other disposition will be null and void and of no effect.

9.Enforcement.

The Company and Grantee acknowledge that the Company's remedy at law for any breach or violation or attempted breach or violation of the provisions of Section 8 will be inadequate and that, in the event of any such breach or violation or attempted breach or violation, the Company will be entitled to injunctive relief in addition to any other remedy, at law or in equity, to which the Company may be entitled.

10.Violation of Transfer Provisions.

Neither the Company nor the Transfer Agent will be required to transfer on the stock records of the Company maintained by either of them any Award Shares which have been sold, transferred, assigned, pledged, encumbered, or otherwise disposed of by anyone in violation of any of the provisions of this Agreement or to treat as the owner of such Award Shares or accord the right to vote or receive dividends to any purported transferee or pledgee to whom such Award Shares have been sold, transferred, assigned, pledged, encumbered, or otherwise disposed of in violation of any of the provisions of this Agreement.

11.Section 83(b) Election.

Grantee has the right to make an election pursuant to Treasury Regulation § 1.83-2 with respect to the Award Shares and, if Grantee makes such election, promptly will furnish to the Company a copy of the form of election Grantee has filed with the Internal Revenue Service for such purpose and evidence that such an election has been made in a timely manner.

12.Withholding.

(a)Upon Grantee's making of the election referred to in Section 11 with respect to any of the Award Shares, Grantee will pay to or provide for the payment to or withholding by the Company of all amounts which the Company is required to withhold from

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Grantee's compensation for federal, state, or local tax purposes by reason of or in connection with such election.  Notwithstanding any provision of this Agreement to the contrary, neither the Company nor the Transfer Agent will be obligated to release from the Restricted Stock Account any of the Award Shares with respect to which Grantee has made such election and which have vested in Grantee until Grantee's obligations under this Section 12 have been satisfied.  

(b)Upon the vesting in Grantee of any of the Award Shares as to which the election referred to in Section 11 was not made by Grantee, the Company will compute as of the applicable vesting date the amounts which the Company is required to withhold from Grantee's compensation for federal, state, and local tax purposes by reason of or in connection with such vesting, based upon the Fair Market Value (as defined in the Plan) of those Award Shares.  After making such computation, the Company will direct the Transfer Agent to remove from the Restricted Stock Account and cancel that number of the Award Shares whose Fair Market Value (as defined in the Plan) as of the applicable vesting date is equal to the aggregate of such amounts required to be withheld by the Company; provided, that for such purpose the number of Award Shares to be removed from the Restricted Stock Account and cancelled will be rounded up to the nearest whole Award Share.  After the actions prescribed by the preceding provisions of this Section 12(b) have been taken, the Company when required by law to do so will pay to the applicable tax authorities in cash the amounts required to have been withheld from Grantee's compensation by reason of or in connection with the vesting referred to in the first sentence of this Section 12(b), with any excess amount resulting from such rounding being treated as federal income tax withholding; and Grantee will have (i) no further obligation with respect to such amounts required to be withheld and (ii) no further rights or interests in the Award Shares withdrawn from the Restricted Stock Account and cancelled pursuant to this Section 12(b), unless the Company has miscomputed such amounts or the number of such Award Shares.

13.Voting and Other Stockholder Rights.

Grantee will have the right to vote with respect to all of the Award Shares which are outstanding and credited to the Restricted Stock Account as of a record date for determining stockholders of the Company entitled to vote, whether or not such Award Shares are vested in Grantee as of such record date.  Except as expressly limited or restricted by this Agreement and except as otherwise provided in this Agreement, Grantee will have all of the other rights of a stockholder of the Company with respect to all of the Award Shares which are outstanding and credited to the Restricted Stock Account at a particular time, whether or not such Award Shares are vested in Grantee at such time.

14.Application of Plan.  

The relevant provisions of the Plan relating to Restricted Stock Awards and the authority of the Committee under the Plan will be applicable to this Agreement to the extent that this Agreement does not otherwise expressly address the subject matter of such provisions.

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15.Change of Control.  

 

(a)Notwithstanding the provisions of Sections 2 and 4, all Award Shares which have not previously vested in Grantee pursuant to Section 2 automatically will vest in Grantee upon an involuntary (on the part of Grantee) Termination of Employment of Grantee without Cause after the occurrence of a Change of Control.

 

(b)For purposes of this Agreement, a "Change of Control" will be deemed to have occurred upon the happening of any of the following events:

 

(i)

The Company is merged or consolidated into another corporation or entity, and immediately after such merger or consolidation becomes effective the holders of a majority of the outstanding shares of voting capital stock of the Company immediately prior to the effectiveness of such merger or consolidation do not own (directly or indirectly) a majority of the outstanding shares of voting capital stock or other equity interests having voting rights of the surviving or resulting corporation or other entity in such merger or consolidation;

 

 

 

(ii)

any person, entity, or group of persons within the meaning of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act") and the rules promulgated thereunder becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of thirty percent (30%) or more of the outstanding voting capital stock of the Company;

 

 

 

(iii)

the Common Stock of the Company ceases to be publicly traded because of an issuer tender offer or other "going private" transaction (other than a transaction sponsored by the then current management of the Company);

 

 

 

(iv)

the Company dissolves or sells or otherwise disposes of all or substantially all of its property and assets (other than to an entity or group of entities which is then under common majority ownership (directly or indirectly) with the Company);

 

 

 

(v)

in one or more substantially concurrent transactions or in a series of related transactions, the Company directly or indirectly disposes of a portion or portions of its business operations (collectively, the

 

9

 


 

 

"Sold Business") other than by ceasing to conduct the Sold Business without its being acquired by a third party (regardless of the entity or entities through which the Company conducted the Sold Business and regardless of whether such disposition is accomplished through a sale of assets, the transfer of ownership of an entity or entities, a merger, or in some other manner) and either (i) the fair market value of the consideration received or to be received by the Company for the Sold Business is equal to at least fifty percent (50%) of the market value of the outstanding Common Stock of the Company determined by multiplying the average of the closing prices for the Common Stock of the Company on the thirty (30) trading days immediately preceding the date of the first public announcement of the proposed disposition of the Sold Business by the average of the numbers of outstanding shares of Common Stock on such thirty (30) trading days or (ii) the revenues of the Sold Business during the most recent four (4) calendar quarters ended prior to the first public announcement of the proposed disposition of the Sold Business represented fifty percent (50%) or more of the total consolidated revenues of the Company during such four (4) calendar quarters; or 

 

 

 

(vi)

during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors of the Company, unless the election or nomination for election of each new director of the Company who took office during such period was approved by a vote of at least seventy-five percent (75%) of the directors of the Company still in office at the time of such election or nomination for election who were directors of the Company at the beginning of such period.

 

 

(c)Definition of "Cause".  For purposes of this agreement, "Cause" will mean only (i) Grantee's confession or conviction of theft, fraud, embezzlement, or other crime involving dishonesty, (ii) Grantee's certification of materially inaccurate financial or other information pertaining to the Company or a Subsidiary (as defined in the Plan) with actual knowledge of such inaccuracies on the part of Grantee, (iii) Grantee's refusal or willful failure to cooperate with an investigation by a governmental agency pertaining to the financial or other

10

 


 

business affairs of the Company or a Subsidiary (as defined in the Plan) unless such refusal or willful failure is based upon a written direction of the Board or the written advice of counsel, (iv) Grantee's excessive absenteeism (other than by reason of physical injury, disease, or mental illness) without a reasonable justification and failure on the part of the Grantee to cure such absenteeism within twenty (20) days after Grantee's receipt of a written notice from the Board or the Chief Executive Officer of the Company setting forth the particulars of such absenteeism, (v) material failure by Grantee to comply with a lawful directive of the Board or the Chief Executive Officer of the Company and failure to cure such non-compliance within twenty (20) days after Grantee's receipt of a written notice from the Board or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such non-compliance, (vi) a material breach by Grantee of any of Grantee's fiduciary duties to the Company or a Subsidiary (as defined in the Plan) and, if such breach is curable, Grantee's failure to cure such breach within twenty (20) days after Grantee's receipt of a written notice from the Board or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such breach, (vii) willful misconduct or fraud on the part of Grantee in the performance of his duties as an employee of the Company or a Subsidiary (as defined in the Plan), or (viii) any other "cause" as defined in any existing employment agreement between the Company and Grantee.  

 

(d)The Grantee acknowledges that he has an Employment Agreement with the Company that is in full force and effect.  That Employment Agreement contains provisions which specify certain limitations on the economic and other benefits that may be conferred upon the Grantee upon a termination of employment (under certain conditions) after a Change in Control of the Company.  More specifically, the Employment Agreement provides for the limitation of payments (including but not limited to the vesting of unvested Award Shares) that would result in the imposition of a tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), on "excess parachute payments" (as defined in Section 280G of the Code) received or receivable by the Grantee, all as further defined in the Employment Agreement.  Grantee agrees that any acceleration of vesting of Award Shares pursuant to this Section 15 is strictly governed by and subject to the provisions of the Employment Agreement relating to Restricted Stock Award Adjustments, and that some or all unvested Award Shares that would otherwise vest upon a qualifying termination after a Change in Control may not vest.  

(e)If the employment of Grantee by the Company terminates without Cause after a Change of Control as a result of a Constructive Termination, as defined in a then existing employment agreement (if any) between the Company and Grantee, and all preconditions to the effectiveness of such a Constructive Termination contained in such then existing employment agreement (if any) have been satisfied, then for purposes of Section 15(a) such termination of Grantee's employment will be deemed to be "an involuntary (on the part of Grantee) Termination of Employment of Grantee without Cause after the occurrence of a Change of Control", and the provisions of Section 15(a) will apply.

 

16.General Provisions.  

(a)No Assignments.   Grantee may not sell, transfer, assign, pledge, encumber, or otherwise dispose of any of Grantee's rights or obligations under this Agreement

11

 


 

without the prior written consent of the Company; and any such attempted sale, transfer, assignment, pledge, encumbrance, or other disposition will be void. 

(b)Notices.  All notices, requests, consents, and other communications required or permitted under this Agreement must be in writing and will be deemed to have been duly given and made upon personal delivery to the person for whom such item is intended (including by a reputable overnight delivery service which will be deemed to have effected personal delivery) or upon deposit, postage prepaid, registered or certified mail, return receipt requested, in the United States mail as follows:

(i)if to Grantee, addressed to Grantee at Grantee's address shown on the stockholder records maintained by the Transfer Agent or at such other address as Grantee may specify by written notice to the Transfer Agent, or

(ii)if to the Company, addressed to the Chief Financial Officer of the Company at the principal office of the Company or at such other address as the Company may specify by written notice to Grantee.

Each such notice, request, consent, and other communication will be deemed to have been given upon receipt thereof as set forth above or, if sooner, three (3) business days after deposit as described above. An address for purposes of this Section 16(b) may be changed by giving written notice of such change in the manner provided in this Section 16(b) for giving notice. Unless and until such written notice is received, the addresses referred to in this Section 16(b) will continue in effect for all purposes of this Agreement.

(c)Choice of Law.  This Agreement will be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

(d)Severability.  The Company and Grantee agree that the provisions of this Agreement are reasonable and will be binding and enforceable in accordance with their terms and, in any event, that the provisions of this Agreement will be enforced to the fullest extent permitted by law.  If any provision of this Agreement for any reason is adjudged to be unenforceable or invalid, then such unenforceable or invalid provision will not affect the enforceability or validity of the remaining provisions of this Agreement, and the Company and Grantee agree to replace such unenforceable or invalid provision with an enforceable and valid arrangement which in its economic effect will be as close as possible to the unenforceable or invalid provision.

(e)Parties in Interest.  All of the terms and provisions of this Agreement will be binding upon, inure to the benefit of, and be enforceable by the respective heirs, personal representatives, successors, and assigns of the Company and the Grantee; provided, that the provisions of this Section 16(e) do not authorize any sale, transfer, assignment, pledge, encumbrance, or other disposition of the Award Shares which is otherwise prohibited by this Agreement.

(f)Modification, Amendment, and Waiver.  No modification, amendment, or waiver of any provision of this Agreement will be effective against the Company or Grantee

12

 


 

unless such modification, amendment, or waiver (i) is in writing, (ii) is signed by the party sought to be bound by such modification, amendment, or waiver, (iii) states that it is intended to modify, amend, or waive a specific provision of this Agreement, and (iv) in the case of the Company, has been authorized by the Committee.  However, Grantee acknowledges and agrees that the Committee, in the exercise of its sole discretion and without Grantee's consent, may modify or amend this Agreement in any manner and delay either the payment of any amounts payable pursuant to this Agreement or the release of any Award Shares which have vested pursuant to this Agreement to the minimum extent necessary to satisfy the requirements of Section 409A of the Code; and the Company will provide Grantee with notice of any such modification or amendment.  The failure of the Company or Grantee at any time to enforce any of the provisions of this Agreement is not be construed as a waiver of such provisions and will not affect the right of the Company or Grantee thereafter to enforce each and every provision of this Agreement in accordance with its terms.  

(g)Integration.  This Agreement constitutes the entire agreement of the Company and Grantee with respect to the subject matter of this Agreement and supersedes all prior negotiations, understandings, and agreements, written or oral, with respect to such subject matter.

(h)Headings.  The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement.

(i)Counterparts.  This Agreement may be executed in counterparts with the same effect as if both the Company and Grantee had signed the same document.  All such counterparts will be deemed to be an original, will be construed together, and will constitute one and the same instrument.

(j)Further Assurances.  The Company and Grantee agree to use their best efforts and act in good faith in carrying out their obligations under this Agreement.  The Company and Grantee also agree to execute and deliver such additional documents and to take such further actions as reasonably may be necessary or desirable to carry out the purposes and intent of this Agreement.

13

 


 

IN WITNESS WHEREOF, the Company and Grantee have executed this Restricted Stock Award Agreement on the dates set forth below, effective on the Award Date.

 

COMPANY:  GRANTEE:

 

CSG SYSTEMS INTERNATIONAL, INC., ___________________________________

a Delaware corporation[Name]  

 

By: ________________________________            Date: _______________________________

Title: President and Chief Executive Officer

 

Date:  _____________________________

14

 

EXHIBIT 31.01

CERTIFICATIONS PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Bret C. Griess, certify that:

1.

I have reviewed this report on Form 10-Q of CSG Systems International, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 6, 2016

 

/s/ Bret C. Griess 

 

 

Bret C. Griess

 

 

Chief Executive Officer

 

EXHIBIT 31.02

CERTIFICATIONS PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Randy R. Wiese, certify that:

1.

I have reviewed this report on Form 10-Q of CSG Systems International, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 6, 2016

 

/s/ Randy R. Wiese

 

 

Randy R. Wiese

 

 

Executive Vice President and Chief Financial Officer

 

 

EXHIBIT 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Bret C. Griess, the Chief Executive Officer and Randy R. Wiese, the Chief Financial Officer of CSG Systems International Inc., each certifies that, to the best of his knowledge:

 

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CSG Systems International, Inc.

May 6, 2016

/s/ Bret C. Griess

Bret C. Griess

Chief Executive Officer

May 6, 2016

/s/ Randy R. Wiese

Randy R. Wiese

Executive Vice President and Chief Financial Officer

 

v3.4.0.3
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
May. 02, 2016
Document And Entity Information [Abstract]    
Entity Registrant Name CSG SYSTEMS INTERNATIONAL INC  
Entity Central Index Key 0001005757  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Trading Symbol CSGS  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   32,435,303
v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 289,733 $ 132,631
Short-term investments 95,497 108,305
Total cash, cash equivalents and short-term investments 385,230 240,936
Trade accounts receivable:    
Billed, net of allowance of $3,647 and $3,600 181,650 178,854
Unbilled 39,236 41,110
Income taxes receivable 4,314 4,038
Other current assets 28,944 35,153
Total current assets 639,374 500,091
Non-current assets:    
Property and equipment, net of depreciation of $116,038 and $112,282 34,290 35,992
Intangible assets 70,729 74,833
Goodwill 216,911 219,724
Deferred income taxes 12,470 17,462
Other assets 14,646 14,629
Total non-current assets 349,046 362,640
Total assets 988,420 862,731
Current liabilities:    
Current portion of long-term debt, net of unamortized discounts of $5,020 and $8,632 114,355 148,868
Client deposits 33,498 33,694
Trade accounts payable 28,938 43,392
Accrued employee compensation 43,479 59,607
Deferred revenue 46,930 41,907
Income taxes payable 7,407 8,962
Other current liabilities 18,984 22,980
Total current liabilities 293,591 359,410
Non-current liabilities:    
Long-term debt, net of unamortized discounts of $26,464 and $4,738 334,786 130,262
Deferred revenue 9,045 9,828
Income taxes payable 4,009 4,413
Deferred income taxes 4,036 182
Other non-current liabilities 12,166 12,791
Total non-current liabilities 364,042 157,476
Total liabilities 657,633 $ 516,886
Current portion of long-term debt conversion obligation $ 107,604  
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; 32,447 and 32,555 shares outstanding $ 673 $ 672
Common stock warrants; 2,851 and 2,851 warrants issued and outstanding 7,310 7,310
Additional paid-in capital 374,689 503,254
Treasury stock, at cost, 34,865 and 34,601 shares (823,963) (814,437)
Accumulated other comprehensive income (loss):    
Unrealized gain (loss) on short-term investments, net of tax 814 (97)
Cumulative foreign currency translation adjustments (27,390) (26,288)
Accumulated earnings 691,050 675,431
Total stockholders' equity 223,183 345,845
Total liabilities, current portion of long-term debt conversion obligation and stockholders' equity 988,420 862,731
Software    
Non-current assets:    
Intangible assets 33,213 35,095
Client contracts    
Non-current assets:    
Intangible assets $ 37,516 $ 39,738
v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Trade accounts receivable-billed, allowance $ 3,647 $ 3,600
Property and equipment, accumulated depreciation 116,038 112,282
Accumulated amortization 187,573 182,984
Current portion of long-term debt, unamortized discounts 5,020 8,632
Long-term debt, unamortized discounts $ 26,464 $ 4,738
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares outstanding 32,447,000 32,555,000
Common stock warrants, issued 2,851,000 2,851,000
Common stock warrants, outstanding 2,851,000 2,851,000
Treasury stock, shares 34,865,000 34,601,000
Software    
Accumulated amortization $ 97,171 $ 95,094
Client contracts    
Accumulated amortization $ 90,402 $ 87,890
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenues:    
Cloud and related solutions $ 149,814 $ 143,833
Software and services 19,178 22,633
Maintenance 17,234 19,165
Total revenues 186,226 185,631
Cost of revenues (exclusive of depreciation, shown separately below):    
Cloud and related solutions 66,233 69,260
Software and services 13,366 21,109
Maintenance 9,884 9,897
Total cost of revenues 89,483 100,266
Other operating expenses:    
Research and development 23,626 25,729
Selling, general and administrative 34,051 33,442
Depreciation 3,516 3,695
Restructuring and reorganization charges (5,741) 606
Total operating expenses 144,935 163,738
Operating income 41,291 21,893
Other income (expense):    
Interest expense (3,005) (3,368)
Amortization of original issue discount (1,658) (1,516)
Interest and investment income, net 468 167
Loss on repurchase of convertible notes (3,211)  
Other, net (791) (465)
Total other (8,197) (5,182)
Income before income taxes 33,094 16,711
Income tax provision (11,590) (7,353)
Net income $ 21,504 $ 9,358
Weighted-average shares outstanding:    
Basic 30,762 31,542
Diluted 33,672 33,340
Earnings per common share:    
Basic $ 0.70 $ 0.30
Diluted 0.64 0.28
Cash dividends declared per common share: $ 0.185 $ 0.175
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]    
Net income $ 21,504 $ 9,358
Other comprehensive loss, net of tax:    
Foreign currency translation adjustments (1,102) (9,535)
Unrealized holding gains on short-term investments arising during period 911 3
Other comprehensive loss, net of tax (191) (9,532)
Total comprehensive income (loss), net of tax $ 21,313 $ (174)
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:    
Net income $ 21,504 $ 9,358
Adjustments to reconcile net income to net cash provided by operating activities-    
Depreciation 3,516 3,695
Amortization 6,415 8,217
Amortization of original issue discount 1,658 1,516
Loss on short-term investments and other 11 91
Loss on repurchase of convertible notes 3,211  
Gain on disposition of business operations (6,614)  
Deferred income taxes 3,923 23
Excess tax benefit of stock-based compensation awards (3,375) (1,796)
Stock-based compensation 6,506 5,089
Changes in operating assets and liabilities, net of acquired amounts:    
Trade accounts receivable, net 35 (986)
Other current and non-current assets 1,597 (1,093)
Income taxes payable/receivable 992 3,338
Trade accounts payable and accrued liabilities (32,490) (16,140)
Deferred revenue 3,785 7,624
Net cash provided by operating activities 10,674 18,936
Cash flows from investing activities:    
Purchases of property and equipment (5,262) (6,695)
Purchases of short-term investments (14,100) (10,085)
Proceeds from sale/maturity of short-term investments 30,067 49,470
Acquisition of and investments in client contracts (1,520) (1,223)
Proceeds from the disposition of business operations 8,850  
Net cash provided by investing activities 18,035 31,467
Cash flows from financing activities:    
Proceeds from issuance of common stock 356 396
Payment of cash dividends (6,529) (5,842)
Repurchase of common stock (18,990) (62,753)
Payments on acquired asset financing   (829)
Proceeds from long-term debt 230,000 150,000
Payments on long-term debt (1,875) (121,875)
Repurchase of convertible notes (72,619)  
Payments of deferred financing costs (6,655) (2,692)
Excess tax benefit of stock-based compensation awards 3,375 1,796
Net cash provided by (used in) financing activities 127,063 (41,799)
Effect of exchange rate fluctuations on cash 1,330 (1,039)
Net increase in cash and cash equivalents 157,102 7,565
Cash and cash equivalents, beginning of period 132,631 81,712
Cash and cash equivalents, end of period 289,733 89,277
Cash paid during the period for-    
Interest 3,339 3,441
Income taxes $ 6,680 $ 3,968
v3.4.0.3
General
3 Months Ended
Mar. 31, 2016
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
General

1. GENERAL

We have prepared the accompanying unaudited condensed consolidated financial statements as of March 31, 2016 and December 31, 2015, and for the quarters ended March 31, 2016 and 2015, in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position and operating results have been included. The unaudited Condensed Consolidated Financial Statements (the “Financial Statements”) should be read in conjunction with the Consolidated Financial Statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in our Annual Report on Form 10-K for the year ended December 31, 2015 (our “2015 10-K”), filed with the SEC. The results of operations for the quarter ended March 31, 2016 are not necessarily indicative of the expected results for the entire year ending December 31, 2016.

v3.4.0.3
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements. The preparation of the accompanying Financial Statements in conformity with GAAP 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 periods. Actual results could differ from those estimates.

Reclassifications.  Certain December 31, 2015 amounts have been reclassified to conform to the March 31, 2016 presentation, which are discussed further in the Accounting Pronouncements Adopted section below.

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of three months or less at the date of the purchase to be cash equivalents. As of March 31, 2016 and December 31, 2015, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of March 31, 2016 and December 31, 2015, we had $4.6 million and $5.0 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 Condensed Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”).

Short-term Investments and Other Financial Instruments. Our financial instruments as of March 31, 2016 and December 31, 2015 include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and debt. Because of 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.

Primarily all short-term investments held by us as of March 31, 2016 and December 31, 2015 have contractual maturities of less than two years from the time of acquisition. Our short-term investments as of March 31, 2016 and December 31, 2015 consisted almost entirely of fixed income securities. Proceeds from the sale/maturity of short-term investments for the first quarters of 2016 and 2015 were $30.1 million and $49.5 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 and liabilities measured at fair value (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

79,156

 

 

$

 

 

$

79,156

 

 

$

35,730

 

 

$

 

 

$

35,730

 

Commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,890

 

 

 

63,890

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

56,623

 

 

 

56,623

 

 

 

 

 

 

31,253

 

 

 

31,253

 

Corporate equity securities

 

 

3,024

 

 

 

 

 

 

3,024

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

 

 

 

 

2,763

 

 

 

2,763

 

 

 

 

 

 

2,763

 

 

 

2,763

 

U.S. government agency bonds

 

 

 

 

 

23,245

 

 

 

23,245

 

 

 

 

 

 

16,201

 

 

 

16,201

 

Asset-backed securities

 

 

 

 

 

9,841

 

 

 

9,841

 

 

 

 

 

 

11,443

 

 

 

11,443

 

Total

 

$

82,180

 

 

$

92,472

 

 

$

174,652

 

 

$

35,730

 

 

$

125,550

 

 

$

161,280

 

Valuation inputs used to measure the fair values of our money market funds and corporate equity securities 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 measure 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):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Credit agreement (carrying value including current maturities)

$

140,625

 

 

$

140,625

 

 

$

142,500

 

 

$

142,500

 

2010 Convertible debt (par value)

 

110,000

 

 

 

218,878

 

 

 

150,000

 

 

 

237,900

 

2016 Convertible debt (par value)

 

230,000

 

 

 

246,100

 

 

 

 

 

 

 

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 4 for additional discussion regarding our convertible debt.

 

Accounting Pronouncements Adopted.  In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30).  This ASU 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. This ASU is effective in fiscal years beginning after December 15, 2015 and must be applied retrospectively.  We adopted this ASU retrospectively on January 1, 2016, which resulted in the reclassification of $5.4 million of debt issuance costs from other assets to long-term debt on our December 31, 2015 Balance Sheet.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), requiring that all deferred tax liabilities and assets be classified as noncurrent.  Prior guidance required us to record deferred tax balances as either current or non-current in accordance with the classification of the underlying attributes. This ASU is effective in fiscal years beginning after December 15, 2016, with early adoption permitted and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  We adopted this ASU retrospectively on January 1, 2016, which resulted in a decrease of $18.1 million in current deferred income tax assets, an increase in non-current deferred income tax assets of $9.1 million and a decrease in non-current deferred income tax liabilities of $9.0 million on our December 31, 2015 Balance Sheet.

 

Accounting Pronouncement Issued But Not Yet Effective. The FASB has issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  This ASU is 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.  The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date which defers the effective date of ASU 2014-09 for one year.  The updated accounting guidance is now effective for annual and interim reporting periods in fiscal years beginning after December 15, 2017.  Early adoption is permitted.  An entity may choose to adopt this ASU either retrospectively or through a cumulative effect adjustment as of the start of the first period for which it applies the standard. We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements and our method of adoption.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method.  We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).  This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  This ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The methods of adoption for this ASU vary by amendment.  We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.

v3.4.0.3
Long-Lived Assets
3 Months Ended
Mar. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]  
Long-Lived Assets

3. LONG-LIVED ASSETS

Goodwill. The changes in the carrying amount of goodwill for the quarter ended March 31, 2016, were as follows (in thousands):

 

January 1, 2016 balance

$

219,724

 

Adjustments related to prior acquisitions

 

(15

)

Effects of changes in foreign currency exchange rates

 

(2,798

)

March 31, 2016 balance

$

216,911

 

Other Intangible Assets. Our intangible assets subject to ongoing amortization consist primarily of client contracts and software. As of March 31, 2016 and December 31, 2015, the carrying values of these assets were as follows (in thousands):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Amount

 

Client contracts

$

127,918

 

 

$

(90,402

)

 

$

37,516

 

 

$

127,628

 

 

$

(87,890

)

 

$

39,738

 

Software

 

130,384

 

 

 

(97,171

)

 

 

33,213

 

 

 

130,189

 

 

 

(95,094

)

 

 

35,095

 

Total

$

258,302

 

 

$

(187,573

)

 

$

70,729

 

 

$

257,817

 

 

$

(182,984

)

 

$

74,833

 

The total amortization expense related to intangible assets for the first quarters of 2016 and 2015 were $5.9 million and $6.9 million, respectively. Based on the March 31, 2016 net carrying value of our intangible assets, the estimated total amortization expense for each of the five succeeding fiscal years ending December 31 are: 2016 – $22.5 million; 2017 – $17.2 million; 2018 – $13.9 million; 2019 – $9.9 million; and 2020 – $5.6 million.

 

v3.4.0.3
Debt
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Debt

4. DEBT

Our long-term debt, as of March 31, 2016 and December 31, 2015, was as follows (in thousands):

 

 

March 31,

2016

 

 

December 31,
2015

 

Credit Agreement:

 

 

 

 

 

 

 

Term loan, due February 2020, interest at adjusted LIBOR plus 1.75% (combined rate of 2.38% at March 31, 2016)

$

140,625

 

 

$

142,500

 

Less - deferred financing costs

 

(4,424

)

 

 

(4,738

)

Term loan, net of unamortized discounts

 

136,201

 

 

 

137,762

 

$200 million revolving loan facility, due February 2020, interest at adjusted LIBOR plus applicable margin

 

 

 

 

 

Convertible Notes:

 

 

 

 

 

 

 

2016 Convertible Notes – Senior convertible notes; due March 15, 2036; cash interest at 4.25%

 

230,000

 

 

 

 

Less – unamortized original issue discount

 

(15,802

)

 

 

 

Less – deferred financing costs

 

(6,238

)

 

 

 

2016 Convertible Notes, net of unamortized discounts

 

207,960

 

 

 

 

2010 Convertible Notes – Senior subordinated convertible notes; due March 1, 2017; cash interest at 3.0%

 

110,000

 

 

 

150,000

 

Less – unamortized original issue discount

 

(4,609

)

 

 

(7,923

)

Less – deferred financing costs

 

(411

)

 

 

(709

)

2010 Convertible Notes, net of unamortized discounts

 

104,980

 

 

 

141,368

 

 Total debt, net of unamortized discounts

 

449,141

 

 

 

279,130

 

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

 

(114,355

)

 

 

(148,868

)

Long-term debt, net of unamortized discounts

$

334,786

 

 

$

130,262

 

Credit Agreement.

During the three months ended March 31, 2016, we made $1.9 million of principal repayments on our 2015 Term Loan. As of March 31, 2016, our interest rate on the 2015 Term Loan is 2.38% (adjusted LIBOR plus 1.75% per annum), effective through June 30, 2016, and our commitment fee on the unused 2015 Revolver is 0.25%.  As of March 31, 2016, we had no borrowing outstanding on our 2015 Revolver and had the entire $200 million available to us.     

Convertible Notes.

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 will pay 4.25% annual cash interest, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2016.

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. The 2016 Convertible Notes will be convertible at an initial conversion rate of 17.4642 shares of our common stock per $1,000 principal amount of the 2016 Convertible Notes, which is equivalent to an initial conversion price of approximately $57.26 per share of our common stock. 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.

Holders may require CSG 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 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 CSG provides 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 Indenture related to the 2016 Convertible Notes (“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 Notes Indenture contains customary affirmative covenants, including compliance with terms of certain other indebtedness of the Company over a defined threshold amount.

The net proceeds from the sale of the 2016 Convertible Notes were approximately $223 million after deducting the initial purchasers’ discount and estimated offering expenses payable by us. We used a portion of the net proceeds from the offering of the 2016 Convertible Notes to repurchase approximately $106 million aggregate principal amount of our 2010 Convertible Notes for approximately $199 million (see additional discussion in 2010 Convertible Notes below). The remainder of the net proceeds will be used for general corporate purposes, which may include additional repurchases of outstanding 2010 Convertible Notes.  

The original issue discount (“OID”) related to the 2016 Convertible Notes of $15.9 million, as a result of an effective interest rate of the liability component of 5.63% compared to the cash interest rate of 4.25%, 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.

2010 Convertible Notes.

On March 15, 2016, following completion of the sale of the 2016 Convertible Notes, we repurchased $40 million aggregate principal amount of the 2010 Convertible Notes for a total purchase price of approximately $73 million and recognized a loss on the repurchase of $3.2 million including the write-off of unamortized deferred financing costs and OID. As of March 31, 2016, the principal outstanding on the 2010 Convertible Notes is $110 million.

As the result of our declaring a cash dividend in February 2016 (see Note 8), the previous conversion rate for the 2010 Convertible Notes of 43.5933 shares of our common stock for each $1,000 in principal amount of the 2010 Convertible Notes (equivalent to a conversion price of $22.94 per share of our common stock) has been adjusted to 43.8047 shares of our common stock for each $1,000 in principal amount of the 2010 Convertible Notes (equivalent to a conversion price of $22.83 per share of our common stock).

Prior to September 1, 2016, holders of the 2010 Convertible Notes can convert their securities at any time in the fiscal quarter following the period in which the price of our common stock trades over 130% of the conversion price for at least 20 consecutive trading days in the last 30 trading days of a fiscal quarter.  As of December 16, 2015, the closing price of our common stock exceeded 130% of the conversion price for the required period, thus allowing the 2010 Convertible Notes to be converted at the holder’s option during the quarter beginning January 1, 2016 and ending March 31, 2016.  In addition, as of March 16, 2016, the closing price of our common stock exceeded the 130% of the conversion price for the required period, thus allowing the 2010 Convertible Notes to continue to be convertible at the holder’s option through the quarter ending June 30, 2016.  Accordingly, as of March 31, 2016, we classified the $110 million principal amount of the 2010 Convertible Notes as a current liability and reclassified the difference between the principal amount payable in cash upon conversion and the total settlement value of the 2010 Convertible Notes, or the intrinsic value of the conversion obligation, of approximately $108 million from stockholders’ equity to current portion of long-term debt conversion obligation on our Balance Sheet.

On April 8, 2016, we repurchased approximately $66 million aggregate principal amount of the 2010 Convertible Notes for a total purchase price of approximately $126 million. We will recognize a loss on the repurchase in the second quarter of 2016 of $5.1 million including the write-off of unamortized deferred financing costs and OID.  After this repurchase, the principal outstanding on the 2010 Convertible Notes is approximately $44 million.

Upon any conversion of the 2010 Convertible Notes, we will settle our conversion obligation as follows: (i) we are required to pay cash for 100% of the par value of the 2010 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 any combination of our common stock and cash, at our discretion.

 

v3.4.0.3
Restructuring and Reorganization Charges
3 Months Ended
Mar. 31, 2016
Restructuring And Related Activities [Abstract]  
Restructuring and Reorganization Charges

5.  RESTRUCTURING AND REORGANIZATION CHARGES

During the first quarters of 2016 and 2015, we recorded restructuring and reorganization charges of ($5.7) million and $0.6 million, respectively.  

In September 2015 we entered into an agreement (the “Agreement”) with certain former management personnel for the sale of our cyber-security business marketed under the Invotas brand.  In February 2016, this business was acquired by a third-party.  Based on the terms of the Agreement, we received additional consideration contingent upon a liquidation event, as defined in the Agreement.  This resulted in an additional gain on the sale of approximately $6.6 million in the first quarter of 2016, which reduces restructuring and reorganization charges.

v3.4.0.3
Commitments, Guarantees and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments And Contingencies Disclosure [Abstract]  
Commitments, Guarantees and Contingencies

6. COMMITMENTS, GUARANTEES AND CONTINGENCIES

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 the date of acceptance 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.

Product 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 March 31, 2016, 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 March 31, 2016. 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. We are not presently a party to any material pending or threatened legal proceedings.

v3.4.0.3
Earnings Per Common Share
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Earnings Per Common Share

 


7. EARNINGS PER COMMON SHARE

Basic and diluted earnings per common share (“EPS”) amounts are presented on the face of the accompanying Income Statements.

No reconciliation of the basic and diluted EPS numerators is necessary as net income is used as the numerators for all periods presented. The reconciliation of the basic and diluted EPS denominators related to the common shares is included in the following table (in thousands):

 

 

Quarter Ended
March 31,

 

 

 

2016

 

 

2015

 

 

Basic weighted-average common shares

 

30,762

 

 

 

31,542

 

 

Dilutive effect of restricted common stock

 

732

 

 

 

658

 

 

Dilutive effect of 2010 Convertible Notes

 

1,900

 

 

 

1,093

 

 

Dilutive effect of Stock Warrants

 

278

 

 

 

47

 

 

Diluted weighted-average common shares

 

33,672

 

 

 

33,340

 

 

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 4).

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 8).  

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

v3.4.0.3
Stockholders' Equity and Equity Compensation Plans
3 Months Ended
Mar. 31, 2016
Stockholders Equity Note [Abstract]  
Stockholders' Equity and Equity Compensation Plans

8. STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION PLANS

Stock Repurchase Program. We currently have a stock repurchase program, approved by our Board, authorizing us to repurchase our common stock from time-to-time as market and business conditions warrant (the “Stock Repurchase Program”). During the first quarters of 2016 and 2015 we repurchased 0.3 million shares of our common stock for $9.5 million (weighted-average price of $36.07 per share) and 0.3 million shares of our common stock for $7.0 million (weighted-average price of $27.06 per share), respectively, under a SEC Rule 10b5-1 Plan.  

In March 2015, we entered into an accelerated share repurchase transaction agreement (the “ASR Agreement”) with a counterparty to repurchase $50 million of our common stock. We paid $50 million to the counterparty and received an initial delivery of 1.3 million shares of our outstanding common stock for an aggregate value of approximately $40 million. The remaining amount was recorded as a forward contract indexed to our common stock in additional paid in capital. Final settlement of the transactions under the ASR Agreement occurred in December 2015.  The ASR Agreement met all the applicable criteria for equity classification, and, therefore, was not accounted for as a derivative instrument.  

As of March 31, 2016, the total remaining number of shares available for repurchase under the Stock Repurchase Program totaled 6.8 million shares.

Stock Repurchases for Tax Withholdings. In addition to the above mentioned stock repurchases, during the first quarters of 2016 and 2015, we repurchased and then cancelled 0.2 million shares of common stock for $9.5 million and 0.2 million shares of common stock for $5.8 million, respectively, in connection with minimum tax withholding requirements resulting from the vesting of restricted common stock under our stock incentive plans.

Cash Dividends.  During the first quarter of 2016, the Board approved a quarterly cash dividend of $0.185 per share of common stock, totaling $6.0 million. During the first quarter of 2015, the Board approved a quarterly cash dividend of $0.175 per share of common stock, totaling $5.7 million.  

Warrants.  In 2014, in conjunction with the execution of an amendment to our current agreement with Comcast Corporation (“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 migrate new customer accounts to ACP. The Stock Warrants have a 10-year term and an exercise price of $26.68 per warrant. As of March 31, 2016, approximately 1.0 million Stock Warrants have vested.         

Upon vesting, the Stock Warrants are recorded as a client incentive asset with the corresponding offset to stockholders’ equity.  The client incentive asset related to the Stock Warrants is amortized as a reduction in cloud and related solutions revenues over the remaining term of the Comcast amended agreement.  As of March 31, 2016, we recorded a client incentive asset related to these Stock Warrants of $7.3 million and have amortized $2.4 million as a reduction in cloud and related solutions revenues.  

The remaining unvested Stock Warrants will be accounted for as client incentive assets in the period the performance conditions necessary for vesting have been met.  As of March 31, 2016, none of the Stock Warrants had been exercised.

Stock-Based Awards. A summary of our unvested restricted common stock activity during the first quarter of 2016 is as follows (shares in thousands):

 

Quarter Ended
March 31, 2016

 

 

Shares

 

 

Weighted-
Average Grant Date Fair Value

 

 

Unvested awards, beginning

 

2,124

 

 

$

26.03

 

 

Awards granted

 

462

 

 

 

38.59

 

 

Awards forfeited/cancelled

 

(118

)

 

 

28.22

 

 

Awards vested

 

(674

)

 

 

22.76

 

 

Unvested awards, ending

 

1,794

 

 

$

30.35

 

 

 

Included in the awards granted during the first quarter of 2016 are performance-based awards for 0.1 million restricted common stock shares issued to members of executive management, which vest in equal installments over three years upon meeting either pre-established financial performance objectives or pre-established total shareholder return objectives. The performance-based awards become fully vested upon a change in control, as defined, and the subsequent involuntary termination of employment.

All other restricted common stock shares granted during the first quarter of 2016 are time-based awards, which vest annually over four years with no restrictions other than the passage of time. Certain shares of the restricted common stock become fully vested upon a change in control, as defined, and the subsequent involuntary termination of employment.

We recorded stock-based compensation expense for the first quarters of 2016 and 2015 of $6.5 million and $5.1 million, respectively.

v3.4.0.3
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Use of Estimates in Preparation of Financial Statements

Use of Estimates in Preparation of Financial Statements. The preparation of the accompanying Financial Statements in conformity with GAAP 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 periods. Actual results could differ from those estimates.

Reclassifications

Reclassifications.  Certain December 31, 2015 amounts have been reclassified to conform to the March 31, 2016 presentation, which are discussed further in the Accounting Pronouncements Adopted section below.

Cash and Cash Equivalents

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of three months or less at the date of the purchase to be cash equivalents. As of March 31, 2016 and December 31, 2015, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of March 31, 2016 and December 31, 2015, we had $4.6 million and $5.0 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 Condensed Consolidated Balance Sheets (“Balance Sheets” or “Balance Sheet”).

Short-term Investments and Other Financial Instruments

Short-term Investments and Other Financial Instruments. Our financial instruments as of March 31, 2016 and December 31, 2015 include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and debt. Because of 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.

Primarily all short-term investments held by us as of March 31, 2016 and December 31, 2015 have contractual maturities of less than two years from the time of acquisition. Our short-term investments as of March 31, 2016 and December 31, 2015 consisted almost entirely of fixed income securities. Proceeds from the sale/maturity of short-term investments for the first quarters of 2016 and 2015 were $30.1 million and $49.5 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 and liabilities measured at fair value (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

79,156

 

 

$

 

 

$

79,156

 

 

$

35,730

 

 

$

 

 

$

35,730

 

Commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,890

 

 

 

63,890

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

56,623

 

 

 

56,623

 

 

 

 

 

 

31,253

 

 

 

31,253

 

Corporate equity securities

 

 

3,024

 

 

 

 

 

 

3,024

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

 

 

 

 

2,763

 

 

 

2,763

 

 

 

 

 

 

2,763

 

 

 

2,763

 

U.S. government agency bonds

 

 

 

 

 

23,245

 

 

 

23,245

 

 

 

 

 

 

16,201

 

 

 

16,201

 

Asset-backed securities

 

 

 

 

 

9,841

 

 

 

9,841

 

 

 

 

 

 

11,443

 

 

 

11,443

 

Total

 

$

82,180

 

 

$

92,472

 

 

$

174,652

 

 

$

35,730

 

 

$

125,550

 

 

$

161,280

 

Valuation inputs used to measure the fair values of our money market funds and corporate equity securities 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 measure 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):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Credit agreement (carrying value including current maturities)

$

140,625

 

 

$

140,625

 

 

$

142,500

 

 

$

142,500

 

2010 Convertible debt (par value)

 

110,000

 

 

 

218,878

 

 

 

150,000

 

 

 

237,900

 

2016 Convertible debt (par value)

 

230,000

 

 

 

246,100

 

 

 

 

 

 

 

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 4 for additional discussion regarding our convertible debt.

Accounting Pronouncements Adopted

Accounting Pronouncements Adopted.  In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30).  This ASU 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. This ASU is effective in fiscal years beginning after December 15, 2015 and must be applied retrospectively.  We adopted this ASU retrospectively on January 1, 2016, which resulted in the reclassification of $5.4 million of debt issuance costs from other assets to long-term debt on our December 31, 2015 Balance Sheet.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), requiring that all deferred tax liabilities and assets be classified as noncurrent.  Prior guidance required us to record deferred tax balances as either current or non-current in accordance with the classification of the underlying attributes. This ASU is effective in fiscal years beginning after December 15, 2016, with early adoption permitted and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  We adopted this ASU retrospectively on January 1, 2016, which resulted in a decrease of $18.1 million in current deferred income tax assets, an increase in non-current deferred income tax assets of $9.1 million and a decrease in non-current deferred income tax liabilities of $9.0 million on our December 31, 2015 Balance Sheet.

Accounting Pronouncement Issued but Not yet Effective

Accounting Pronouncement Issued But Not Yet Effective. The FASB has issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  This ASU is 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.  The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date which defers the effective date of ASU 2014-09 for one year.  The updated accounting guidance is now effective for annual and interim reporting periods in fiscal years beginning after December 15, 2017.  Early adoption is permitted.  An entity may choose to adopt this ASU either retrospectively or through a cumulative effect adjustment as of the start of the first period for which it applies the standard. We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements and our method of adoption.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet.  This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method.  We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).  This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  This ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The methods of adoption for this ASU vary by amendment.  We are currently in the process of evaluating the impact that this new guidance will have on our Financial Statements.

v3.4.0.3
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Fair Value Measurements

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 and liabilities measured at fair value (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

79,156

 

 

$

 

 

$

79,156

 

 

$

35,730

 

 

$

 

 

$

35,730

 

Commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,890

 

 

 

63,890

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

56,623

 

 

 

56,623

 

 

 

 

 

 

31,253

 

 

 

31,253

 

Corporate equity securities

 

 

3,024

 

 

 

 

 

 

3,024

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

 

 

 

 

2,763

 

 

 

2,763

 

 

 

 

 

 

2,763

 

 

 

2,763

 

U.S. government agency bonds

 

 

 

 

 

23,245

 

 

 

23,245

 

 

 

 

 

 

16,201

 

 

 

16,201

 

Asset-backed securities

 

 

 

 

 

9,841

 

 

 

9,841

 

 

 

 

 

 

11,443

 

 

 

11,443

 

Total

 

$

82,180

 

 

$

92,472

 

 

$

174,652

 

 

$

35,730

 

 

$

125,550

 

 

$

161,280

 

 

Carrying Value and Estimated Fair Value of Debt

We have chosen not to measure 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):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Credit agreement (carrying value including current maturities)

$

140,625

 

 

$

140,625

 

 

$

142,500

 

 

$

142,500

 

2010 Convertible debt (par value)

 

110,000

 

 

 

218,878

 

 

 

150,000

 

 

 

237,900

 

2016 Convertible debt (par value)

 

230,000

 

 

 

246,100

 

 

 

 

 

 

 

 

v3.4.0.3
Long-Lived Assets (Tables)
3 Months Ended
Mar. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]  
Summary of Changes In Carrying Amount of Goodwill

Goodwill. The changes in the carrying amount of goodwill for the quarter ended March 31, 2016, were as follows (in thousands):

 

January 1, 2016 balance

$

219,724

 

Adjustments related to prior acquisitions

 

(15

)

Effects of changes in foreign currency exchange rates

 

(2,798

)

March 31, 2016 balance

$

216,911

 

 

Summary of Carrying Value of Assets

Other Intangible Assets. Our intangible assets subject to ongoing amortization consist primarily of client contracts and software. As of March 31, 2016 and December 31, 2015, the carrying values of these assets were as follows (in thousands):

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Amount

 

Client contracts

$

127,918

 

 

$

(90,402

)

 

$

37,516

 

 

$

127,628

 

 

$

(87,890

)

 

$

39,738

 

Software

 

130,384

 

 

 

(97,171

)

 

 

33,213

 

 

 

130,189

 

 

 

(95,094

)

 

 

35,095

 

Total

$

258,302

 

 

$

(187,573

)

 

$

70,729

 

 

$

257,817

 

 

$

(182,984

)

 

$

74,833

 

 

v3.4.0.3
Debt (Tables)
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Long-Term Debt

Our long-term debt, as of March 31, 2016 and December 31, 2015, was as follows (in thousands):

 

 

March 31,

2016

 

 

December 31,
2015

 

Credit Agreement:

 

 

 

 

 

 

 

Term loan, due February 2020, interest at adjusted LIBOR plus 1.75% (combined rate of 2.38% at March 31, 2016)

$

140,625

 

 

$

142,500

 

Less - deferred financing costs

 

(4,424

)

 

 

(4,738

)

Term loan, net of unamortized discounts

 

136,201

 

 

 

137,762

 

$200 million revolving loan facility, due February 2020, interest at adjusted LIBOR plus applicable margin

 

 

 

 

 

Convertible Notes:

 

 

 

 

 

 

 

2016 Convertible Notes – Senior convertible notes; due March 15, 2036; cash interest at 4.25%

 

230,000

 

 

 

 

Less – unamortized original issue discount

 

(15,802

)

 

 

 

Less – deferred financing costs

 

(6,238

)

 

 

 

2016 Convertible Notes, net of unamortized discounts

 

207,960

 

 

 

 

2010 Convertible Notes – Senior subordinated convertible notes; due March 1, 2017; cash interest at 3.0%

 

110,000

 

 

 

150,000

 

Less – unamortized original issue discount

 

(4,609

)

 

 

(7,923

)

Less – deferred financing costs

 

(411

)

 

 

(709

)

2010 Convertible Notes, net of unamortized discounts

 

104,980

 

 

 

141,368

 

 Total debt, net of unamortized discounts

 

449,141

 

 

 

279,130

 

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

 

(114,355

)

 

 

(148,868

)

Long-term debt, net of unamortized discounts

$

334,786

 

 

$

130,262

 

 

v3.4.0.3
Earnings Per Common Share (Tables)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Reconciliation of the Basic and Diluted EPS Denominators

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

 

 

Quarter Ended
March 31,

 

 

 

2016

 

 

2015

 

 

Basic weighted-average common shares

 

30,762

 

 

 

31,542

 

 

Dilutive effect of restricted common stock

 

732

 

 

 

658

 

 

Dilutive effect of 2010 Convertible Notes

 

1,900

 

 

 

1,093

 

 

Dilutive effect of Stock Warrants

 

278

 

 

 

47

 

 

Diluted weighted-average common shares

 

33,672

 

 

 

33,340

 

 

 

v3.4.0.3
Stockholders' Equity and Equity Compensation Plans (Tables)
3 Months Ended
Mar. 31, 2016
Stockholders Equity Note [Abstract]  
Summary of Unvested Restricted Common Stock Activity

Stock-Based Awards. A summary of our unvested restricted common stock activity during the first quarter of 2016 is as follows (shares in thousands):

 

Quarter Ended
March 31, 2016

 

 

Shares

 

 

Weighted-
Average Grant Date Fair Value

 

 

Unvested awards, beginning

 

2,124

 

 

$

26.03

 

 

Awards granted

 

462

 

 

 

38.59

 

 

Awards forfeited/cancelled

 

(118

)

 

 

28.22

 

 

Awards vested

 

(674

)

 

 

22.76

 

 

Unvested awards, ending

 

1,794

 

 

$

30.35

 

 

 

v3.4.0.3
Summary of Significant Accounting Policies (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]      
Restricted cash $ 4,600   $ 5,000
Proceeds from sale/maturity of short-term investments 30,067 $ 49,470  
Deferred income taxes assets, noncurrent 12,470   17,462
Deferred income taxes liabilities, noncurrent 4,036   $ 182
Reclassification of Debt Issuance Costs From Other Assets to Long Term Debt | ASU 2015-03      
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]      
Deferred issuance costs 5,400    
Reclassification of Deferred Tax Assets Liabilities From Current to Non-Current | ASU 2015-17      
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]      
Decrease in current deferred income tax assets 18,100    
Deferred income taxes assets, noncurrent 9,100    
Deferred income taxes liabilities, noncurrent $ 9,000    
Maximum      
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]      
Short-term investment contractual maturities 2 years   2 years
v3.4.0.3
Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Assets:    
Assets fair value $ 174,652 $ 161,280
Level 1    
Assets:    
Assets fair value 82,180 35,730
Level 2    
Assets:    
Assets fair value 92,472 125,550
Cash equivalents | Money Market Funds    
Assets:    
Assets fair value 79,156 35,730
Cash equivalents | Commercial Paper    
Assets:    
Assets fair value   63,890
Cash equivalents | Level 1 | Money Market Funds    
Assets:    
Assets fair value 79,156 35,730
Cash equivalents | Level 2 | Commercial Paper    
Assets:    
Assets fair value   63,890
Short-term Investments | Municipal Bonds    
Assets:    
Assets fair value 2,763 2,763
Short-term Investments | Corporate Debt Securities    
Assets:    
Assets fair value 56,623 31,253
Short-term Investments | Corporate Equity Securities    
Assets:    
Assets fair value 3,024  
Short-term Investments | U.S. Government Agency Bonds    
Assets:    
Assets fair value 23,245 16,201
Short-term Investments | Asset-backed securities    
Assets:    
Assets fair value 9,841 11,443
Short-term Investments | Level 1 | Corporate Equity Securities    
Assets:    
Assets fair value 3,024  
Short-term Investments | Level 2 | Municipal Bonds    
Assets:    
Assets fair value 2,763 2,763
Short-term Investments | Level 2 | Corporate Debt Securities    
Assets:    
Assets fair value 56,623 31,253
Short-term Investments | Level 2 | U.S. Government Agency Bonds    
Assets:    
Assets fair value 23,245 16,201
Short-term Investments | Level 2 | Asset-backed securities    
Assets:    
Assets fair value $ 9,841 $ 11,443
v3.4.0.3
Summary of Significant Accounting Policies - Carrying Value and Estimated Fair Value of Debt (Details 1) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Carrying value and estimated fair value of debt    
Credit agreement, carrying value $ 140,625 $ 142,500
Credit agreement, fair value 140,625 142,500
2010 Convertible Debt    
Carrying value and estimated fair value of debt    
Convertible debt, carrying value 110,000 150,000
Convertible debt, fair value 218,878 $ 237,900
2016 Convertible Debt    
Carrying value and estimated fair value of debt    
Convertible debt, carrying value 230,000  
Convertible debt, fair value $ 246,100  
v3.4.0.3
Long-Lived Assets - Summary of Changes In Carrying Amount of Goodwill (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
Goodwill Rollforward  
Beginning balance $ 219,724
Adjustments related to prior acquisitions (15)
Effects of changes in foreign currency exchange rates (2,798)
Ending balance $ 216,911
v3.4.0.3
Long-Lived Assets - Summary of Carrying Value of Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Summary of carrying value of assets    
Gross Carrying Amount $ 258,302 $ 257,817
Accumulated Amortization (187,573) (182,984)
Net Amount 70,729 74,833
Client contracts    
Summary of carrying value of assets    
Gross Carrying Amount 127,918 127,628
Accumulated Amortization (90,402) (87,890)
Net Amount 37,516 39,738
Software    
Summary of carrying value of assets    
Gross Carrying Amount 130,384 130,189
Accumulated Amortization (97,171) (95,094)
Net Amount $ 33,213 $ 35,095
v3.4.0.3
Long-Lived Assets (Details Textual) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Goodwill And Intangible Assets Disclosure [Abstract]    
Total amortization expense $ 5.9 $ 6.9
Estimated total amortization expense 2016 22.5  
Estimated total amortization expense 2017 17.2  
Estimated total amortization expense 2018 13.9  
Estimated total amortization expense 2019 9.9  
Estimated total amortization expense 2020 $ 5.6  
v3.4.0.3
Debt - Long-Term Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]    
Less – unamortized original issue discount $ (26,464) $ (4,738)
Less – unamortized original issue discount (5,020) (8,632)
Total debt, net of unamortized discounts 449,141 279,130
Current portion of long-term debt, net of unamortized discounts (114,355) (148,868)
Long-term debt, net of unamortized discounts 334,786 130,262
Credit Agreement | Term Loan    
Debt Instrument [Line Items]    
Total long-term debt, gross 140,625 142,500
Less - deferred financing costs (4,424) (4,738)
Total debt, net of unamortized discounts 136,201 137,762
Senior Convertible Notes 2016    
Debt Instrument [Line Items]    
Total long-term debt, gross 230,000  
Less – unamortized original issue discount (15,802)  
Less - deferred financing costs (6,238)  
Total debt, net of unamortized discounts 207,960  
Senior Subordinated Convertible Notes 2010    
Debt Instrument [Line Items]    
Total long-term debt, gross 110,000 150,000
Less – unamortized original issue discount (4,609) (7,923)
Less – deferred financing costs (411) (709)
Total debt, net of unamortized discounts $ 104,980 $ 141,368
v3.4.0.3
Debt - Long-Term Debt (Parenthetical) (Details)
3 Months Ended
Mar. 31, 2016
USD ($)
Credit Agreement | Term Loan  
Debt Instrument [Line Items]  
Basis spread on term loan 1.75%
Term loan combined interest rate 2.38%
Maturity period Feb. 29, 2020
Credit Agreement | Revolving Loan  
Debt Instrument [Line Items]  
Amount available under credit facility $ 200,000,000
Maturity period Feb. 29, 2020
Senior Subordinated Convertible Notes 2010  
Debt Instrument [Line Items]  
Maturity period Mar. 01, 2017
Interest rate on senior subordinated convertible notes 3.00%
Senior Convertible Notes 2016  
Debt Instrument [Line Items]  
Maturity period Mar. 15, 2036
Interest rate on senior subordinated convertible notes 4.25%
v3.4.0.3
Debt - Credit Agreement (Details Textual) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Debt Instrument [Line Items]    
Principal repayments $ 1,875 $ 121,875
Credit Agreement | Revolving Loan    
Debt Instrument [Line Items]    
Line of credit facility, unused capacity, commitment fee percentage 0.25%  
Credit facility, current borrowing capacity $ 200,000  
Credit Agreement | Term Loan    
Debt Instrument [Line Items]    
Principal repayments $ 1,900  
Term loan combined interest rate 2.38%  
Basis spread on term loan 1.75%  
v3.4.0.3
Debt - 2016 Convertible Notes (Details Textual)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
Tradingday
$ / shares
Mar. 31, 2015
USD ($)
Apr. 08, 2016
USD ($)
Dec. 31, 2015
USD ($)
Debt Instrument [Line Items]        
Proceeds from long-term debt $ 230,000 $ 150,000    
Long-term debt, unamortized original issue discount 26,464     $ 4,738
Subsequent Event        
Debt Instrument [Line Items]        
Aggregate principal amount of convertible notes repurchased     $ 106,000  
Amount paid to purchase aggregate principal amount     $ 199,000  
Senior Convertible Notes 2016        
Debt Instrument [Line Items]        
Senior convertible notes face amount $ 230,000      
Interest rate on senior convertible notes 4.25%      
Maturity date of 2016 convertible Notes Mar. 15, 2036      
Initial conversion rate of common stock 17.4642      
Convertible Notes, initial conversion of Par Value Convertible Notes to common stock $ 1      
Initial conversion price | $ / shares $ 57.26      
Percentage of par value of convertible notes to be settled in cash 100.00%      
Rate of conversion price 130.00%      
Debt instrument, convertible, threshold consecutive trading days 20 days      
Debt instrument, convertible, threshold trading days | Tradingday 30      
Proceeds from long-term debt $ 223,000      
Long-term debt, unamortized original issue discount $ 15,802      
Effective interest rate of the liability 5.63%      
v3.4.0.3
Debt - 2010 Convertible Notes (Details Textual)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 15, 2016
USD ($)
Jun. 30, 2016
USD ($)
Mar. 31, 2016
USD ($)
Tradingday
$ / shares
Mar. 31, 2015
USD ($)
$ / shares
Apr. 08, 2016
USD ($)
Debt Instrument [Line Items]          
Loss on repurchase of convertible notes     $ (3,211)    
Intrinsic value of conversion obligation     107,604    
Subsequent Event          
Debt Instrument [Line Items]          
Aggregate principal amount of convertible notes repurchased         $ 106,000
Amount paid to purchase aggregate principal amount         199,000
Senior Subordinated Convertible Notes 2010          
Debt Instrument [Line Items]          
Aggregate principal amount of convertible notes repurchased $ 40,000        
Amount paid to purchase aggregate principal amount 73,000        
Loss on repurchase of convertible notes $ (3,200)        
Principal outstanding on Convertible Notes     $ 110,000    
Initial conversion rate of common stock     43.8047 43.5933  
Convertible Notes, initial conversion of Par Value Convertible Notes to common stock     $ 1 $ 1  
Initial conversion price | $ / shares     $ 22.83 $ 22.94  
Debt instrument, convertible, terms of conversion feature     Prior to September 1, 2016, holders of the 2010 Convertible Notes can convert their securities at any time in the fiscal quarter following the period in which the price of our common stock trades over 130% of the conversion price for at least 20 consecutive trading days in the last 30 trading days of a fiscal quarter.    
Rate of conversion price     130.00%    
Debt instrument, convertible, threshold consecutive trading days     20 days    
Debt instrument, convertible, threshold trading days | Tradingday     30    
Intrinsic value of conversion obligation     $ 108,000    
Percentage of par value of convertible notes to be settled in cash     100.00%    
Senior Subordinated Convertible Notes 2010 | Subsequent Event          
Debt Instrument [Line Items]          
Aggregate principal amount of convertible notes repurchased         66,000
Amount paid to purchase aggregate principal amount         126,000
Principal outstanding on Convertible Notes         $ 44,000
Senior Subordinated Convertible Notes 2010 | Scenario, Forecast          
Debt Instrument [Line Items]          
Loss on repurchase of convertible notes   $ (5,100)      
v3.4.0.3
Restructuring and Reorganization Charges (Details Textual) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Restructuring Cost And Reserve [Line Items]    
Restructuring and reorganization charges recorded during the first quarter $ (5,741) $ 606
Gain on disposition of business operations 6,614  
Cyber Security Business    
Restructuring Cost And Reserve [Line Items]    
Gain on disposition of business operations $ 6,614  
v3.4.0.3
Commitments, Guarantees and Contingencies (Details Textual)
3 Months Ended
Mar. 31, 2016
Commitments And Contingencies Disclosure [Abstract]  
Warranty Period 90 days
v3.4.0.3
Earnings Per Common Share - Reconciliation of the Basic and Diluted EPS Denominators (Details) - shares
shares in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Reconciliation of the basic and diluted EPS denominators    
Basic weighted-average common shares 30,762 31,542
Dilutive effect of restricted common stock 732 658
Dilutive effect of 2010 Convertible Notes 1,900 1,093
Dilutive effect of Stock Warrants 278 47
Diluted weighted-average common shares 33,672 33,340
v3.4.0.3
Earnings Per Common Share (Details Textual)
Mar. 31, 2016
$ / shares
Common stock Warrants  
Earnings Per Common Share [Line Items]  
Exercise price of warrants $ 26.68
v3.4.0.3
Stockholders' Equity and Equity Compensation Plans (Details Textual) - USD ($)
$ / shares in Units, $ in Millions
1 Months Ended 3 Months Ended 12 Months Ended
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2014
Stockholders Equity And Equity Compensation Plans [Line Items]        
Remaining number of shares available for repurchase   6,800,000    
Repurchase of common stock for employee tax withholdings, shares   200,000 200,000  
Repurchase of common stock for tax withholdings, value   $ 9.5 $ 5.8  
Cash dividends declared per common share   $ 0.185 $ 0.175  
Cash dividend   $ 6.0 $ 5.7  
Stock warrants term       10 years
Stock warrants, exercise price       $ 26.68
Stock-based compensation expense   $ 6.5 $ 5.1  
Performance Shares        
Stockholders Equity And Equity Compensation Plans [Line Items]        
Performance based awards granted to executive management shares   100,000    
Stock-based compensation expense   3 years    
Restricted common stock        
Stockholders Equity And Equity Compensation Plans [Line Items]        
Stock-based compensation expense   4 years    
Migration Of Comcast Current Residential Customer Accounts        
Stockholders Equity And Equity Compensation Plans [Line Items]        
Number of stock warrants vesting   1,000,000    
Comcast Corporation        
Stockholders Equity And Equity Compensation Plans [Line Items]        
Issuance of stock warrants       2,900,000
Client contract incentive related to stock warrants   $ 7.3    
Amortization expense of client contract incentive related to stock warrants   $ 2.4    
Stock warrants exercised   0    
SEC Rule 10b5-1 Plan        
Stockholders Equity And Equity Compensation Plans [Line Items]        
Repurchase of common stock, shares   300,000 300,000  
Total amount paid   $ 9.5 $ 7.0  
Weighted-average price per share   $ 36.07 $ 27.06  
ASR Agreement        
Stockholders Equity And Equity Compensation Plans [Line Items]        
Repurchase of common stock, shares 1,300,000      
Total amount paid $ 40.0      
Accelerated share repurchase agreement, total amount paid $ 50.0   $ 50.0  
v3.4.0.3
Stockholders' Equity and Equity Compensation Plans - Summary of Unvested Restricted Common Stock Activity (Details) - Restricted common stock
shares in Thousands
3 Months Ended
Mar. 31, 2016
$ / shares
shares
Shares  
Shares, Unvested awards, beginning balance | shares 2,124
Shares, Awards granted | shares 462
Shares, Awards forfeited/cancelled | shares (118)
Shares, Awards vested | shares (674)
Shares, Unvested awards, ending balance | shares 1,794
Weighted average grant date fair value  
Weighted-Average Grant Date Fair Value, Unvested awards, beginning balance | $ / shares $ 26.03
Weighted-Average Grant Date Fair Value, Awards granted | $ / shares 38.59
Weighted-Average Grant Date Fair Value, Awards forfeited/cancelled | $ / shares 28.22
Weighted-Average Grant Date Fair Value, Awards vested | $ / shares 22.76
Weighted-Average Grant Date Fair Value, Unvested awards, ending balance | $ / shares $ 30.35
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