YTD Organic Revenue Up 9.0% YoY Representing CSG’s Best YTD
Results in Nearly Two Decades
Raising Non-GAAP EPS Guidance & Reiterating All Other
Financial Guidance Metrics
Repurchased $107 Million of Shares in Q3, Most Quarterly
Share Repurchases Since Q3 2007
Successfully Executed $425 Million Convertible Debt Raise in
Q3
CSG (NASDAQ: CSGS) today reported results for the quarter ended
September 30, 2023.
Financial Results:
Third quarter 2023 financial results:
- Total revenue was $286.9 million.
- GAAP operating income was $32.7 million, or an operating
margin of 11.4%, and non-GAAP operating income was $45.2
million, or a non-GAAP adjusted operating margin of
17.0%.
- GAAP earnings per diluted share (EPS) was $0.62 and
non-GAAP EPS was $0.92.
- Cash flows from operations were $24.6 million, with
non-GAAP free cash flow of $18.1 million.
Shareholder Returns:
- CSG declared its quarterly cash dividend of $0.28 per
share of common stock, or a total of approximately $9
million, to shareholders.
- During the third quarter of 2023, CSG repurchased under its
stock repurchase program, approximately 1,991,000 shares of
its common stock for approximately $107 million.
Business Activities:
- In September 2023, CSG issued $425.0 million of convertible
notes (2023 Convertible Notes) due in 2028.
“Team CSG had a fantastic first nine months of 2023. We
delivered strong financial results across the board highlighted by
9.0% year-over-year organic revenue growth, our strongest first
nine-month results in nearly two decades,” said Brian Shepherd,
President and Chief Executive Officer of CSG. “During the quarter
we completed a successful $425 million convertible debt raise,
which lowered our interest rate to 3.875% and significantly
decreased our exposure to floating rate debt. We also completed our
previously announced $100 million stock repurchase program in the
quarter, as we bought back $107 million shares in Q3. Finally, we
are raising our non-GAAP EPS guidance and reiterating all other
financial targets.”
Financial Overview
(unaudited)
(in thousands, except per share amounts and percentages):
Quarter Ended September
30,
Nine Months Ended September
30,
Percent
Percent
2023
2022
Changed
2023
2022
Changed
GAAP Results:
Revenue
$
286,868
$
273,308
5.0
%
$
871,934
$
799,876
9.0
%
Operating Income
32,731
19,977
63.8
%
99,130
43,675
127.0
%
Operating Margin Percentage
11.4
%
7.3
%
11.4
%
5.5
%
EPS
$
0.62
$
0.40
55.0
%
$
1.75
$
0.76
130.3
%
Non-GAAP Results:
Operating Income
$
45,203
$
46,747
(3.3
%)
$
141,664
$
123,673
14.5
%
Adjusted Operating Margin Percentage
17.0
%
18.3
%
17.5
%
16.6
%
EPS
$
0.92
$
1.06
(13.2
%)
$
2.76
$
2.76
0.0
%
For additional information and reconciliations regarding CSG’s
use of non-GAAP financial measures, please refer to the attached
Exhibit 2 and the Investor Relations section of CSG’s website at
csgi.com.
Results of Operations
GAAP Results: Total revenue for the
third quarter of 2023 was $286.9 million, a 5.0% increase when
compared to revenue of $273.3 million for the third quarter of
2022. The year-over-year increase can be mainly attributed to the
continued growth of CSG’s revenue management solutions, to include
the conversion of customer accounts on CSG solutions, other
ancillary services and increased payments volumes.
GAAP operating income for the third quarter of 2023 was $32.7
million, or 11.4% of total revenue, compared to $20.0 million, or
7.3% of total revenue, for the third quarter of 2022. The increase
in operating income can be mainly attributed to the $13.0 million
decrease in restructuring and reorganization charges between
years.
GAAP EPS for the third quarter of 2023 was $0.62, as compared to
$0.40 for the third quarter of 2022. The increase in GAAP EPS is
mainly due to the higher operating income in the third quarter of
2023, discussed above, partially offset by higher interest expense
and foreign currency movements.
Non-GAAP Results: Non-GAAP
operating income for the third quarter of 2023 was $45.2 million,
or a non-GAAP adjusted operating margin of 17.0%, compared to $46.7
million, or a non-GAAP adjusted operating margin of 18.3% for the
third quarter of 2022.
Non-GAAP EPS for the third quarter of 2023 was $0.92 compared to
$1.06 for the third quarter of 2022. The decrease in non-GAAP EPS
is mainly due to higher interest expense and foreign currency
movements.
Balance Sheet and Cash
Flows
Cash, cash equivalents, and short-term investments as of
September 30, 2023 were $146.7 million compared to $146.2 million
as of June 30, 2023 and $150.4 million as of December 31, 2022. CSG
had net cash flows provided by operations for the third quarters
ended September 30, 2023 and 2022 of $24.6 million and $22.8
million, respectively, and had non-GAAP free cash flow of $18.1
million and $10.9 million, respectively.
Summary of Financial
Guidance
CSG is revising its financial guidance for the full year 2023,
as follows:
As of November 1, 2023
Previous
GAAP Measures:
Revenue
No change
$1,150 - $1,175 million
Non-GAAP Measures:
Adjusted Operating Margin Percentage
No change
16.75% - 17.1%
EPS
$3.50 - $3.70
$3.42 - $3.58
Adjusted EBITDA
No change
$238 - $245 million
Free Cash Flow
No change
$80 - $120 million
For additional information and reconciliations regarding CSG’s
use of non-GAAP financial measures, please refer to the attached
Exhibit 2 and the Investor Relations section of CSG’s website at
csgi.com.
Conference Call
CSG will host a conference call on Wednesday, November 1, 2023
at 5:00 p.m. ET, to discuss CSG’s third quarter 2023 earnings
results. The call will be carried live and archived on the
Internet. A link to the conference call is available at
http://ir.csgi.com. In addition, to reach the conference by phone,
call 1-888-412-4131 and use the passcode 2327393.
Additional Information
For information about CSG, please visit CSG’s web site at
csgi.com. Additional information can be found in the Investor
Relations section of the website.
About CSG
CSG empowers companies to build unforgettable experiences,
making it easier for people and businesses to connect with, use and
pay for the services they value most. Our customer experience,
billing and payments solutions help companies of any size make
money and make a difference. With our SaaS solutions, company
leaders can take control of their future and tap into guidance
along the way from our fiercely committed and forward-thinking
CSGers around the world.
Want to be future-ready and a change-maker like the global
brands that trust CSG? Visit csgi.com to learn more.
Forward-Looking
Statements
This news release contains forward-looking statements as defined
under the Securities Act of 1933, as amended, that are based on
assumptions about a number of important factors and involve risks
and uncertainties that could cause actual results to differ
materially from what appears in this news release. Some of these
key factors include, but are not limited to the following
items:
- CSG derives approximately forty percent of its revenue from its
two largest customers;
- Fluctuations in credit market conditions, general global
economic and political conditions, and foreign currency exchange
rates;
- CSG’s ability to maintain a reliable, secure computing
environment;
- Continued market acceptance of CSG’s products and
services;
- CSG’s ability to continuously develop and enhance products in a
timely, cost-effective, technically advanced and competitive
manner;
- CSG’s ability to deliver its solutions in a timely fashion
within budget, particularly large and complex software
implementations;
- CSG’s dependency on the global telecommunications industry, and
in particular, the North American telecommunications industry;
- CSG’s ability to meet its financial expectations;
- Increasing competition in CSG’s market from companies of
greater size and with broader presence;
- CSG’s ability to successfully integrate and manage acquired
businesses or assets to achieve expected strategic, operating and
financial goals;
- CSG’s ability to protect its intellectual property rights;
- CSG’s ability to conduct business in the international
marketplace;
- CSG’s ability to comply with applicable U.S. and International
laws and regulations; and
- CSG’s business may be disrupted, and its results of operations
and cash flows adversely affected by a global pandemic.
This list is not exhaustive, and readers are encouraged to
review the additional risks and important factors described in
CSG’s reports on Forms 10-K and 10-Q and other filings made with
the SEC.
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS-UNAUDITED
(in thousands)
September 30, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
146,730
$
150,365
Short-term investments
-
71
Total cash, cash equivalents, and
short-term investments
146,730
150,436
Settlement and merchant reserve assets
193,371
238,653
Trade accounts receivable:
Billed, net of allowance of $4,731 and
$5,528
275,161
274,189
Unbilled
83,612
52,830
Income taxes receivable
2,492
1,270
Other current assets
58,701
48,577
Total current assets
760,067
765,955
Non-current assets:
Property and equipment, net of
depreciation of $118,424 and $105,466
68,029
71,787
Operating lease right-of-use assets
37,196
49,687
Software, net of amortization of $159,451
and $150,337
16,741
22,774
Goodwill
302,996
304,036
Acquired customer contracts, net of
amortization of $127,490 and $120,080
37,932
45,417
Customer contract costs, net of
amortization of $38,174 and $30,601
53,336
54,735
Deferred income taxes
46,271
26,206
Other assets
7,034
7,956
Total non-current assets
569,535
582,598
Total assets
$
1,329,602
$
1,348,553
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt
$
22,500
$
37,500
Operating lease liabilities
16,915
21,012
Customer deposits
33,084
40,472
Trade accounts payable
42,623
47,720
Accrued employee compensation
64,313
68,321
Settlement and merchant reserve
liabilities
191,637
237,810
Deferred revenue
61,419
46,033
Income taxes payable
2,211
5,455
Other current liabilities
26,831
22,886
Total current liabilities
461,533
527,209
Non-current liabilities:
Long-term debt, net of unamortized
discounts of $16,502 and $2,656
535,998
375,469
Operating lease liabilities
37,574
53,207
Deferred revenue
20,828
21,991
Income taxes payable
3,243
3,410
Deferred income taxes
128
117
Other non-current liabilities
9,807
11,901
Total non-current liabilities
607,578
466,095
Total liabilities
1,069,111
993,304
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; 29,726 and 31,269 shares outstanding
713
708
Additional paid-in capital
483,063
495,189
Treasury stock, at cost; 40,202 and 38,210
shares
(1,125,897
)
(1,018,034
)
Accumulated other comprehensive income
(loss):
Unrealized gain on short-term investments,
net of tax
1
1
Cumulative foreign currency translation
adjustments
(60,773
)
(58,830
)
Accumulated earnings
963,384
936,215
Total stockholders' equity
260,491
355,249
Total liabilities and stockholders'
equity
$
1,329,602
$
1,348,553
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per
share amounts)
Quarter Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Revenue
$
286,868
$
273,308
$
871,934
$
799,876
Cost of revenue (exclusive of
depreciation, shown separately below)
152,734
138,462
458,897
415,014
Other operating expenses:
Research and development
35,292
35,754
107,401
103,365
Selling, general and administrative
59,097
59,026
180,930
173,833
Depreciation
5,862
5,896
17,155
17,685
Restructuring and reorganization
charges
1,152
14,193
8,421
46,304
Total operating expenses
254,137
253,331
772,804
756,201
Operating income
32,731
19,977
99,130
43,675
Other income (expense):
Interest expense
(8,036
)
(4,328
)
(23,092
)
(10,286
)
Interest and investment income, net
1,175
281
2,516
537
Loss on derivative liability upon debt
conversion
-
-
-
(7,456
)
Other, net
813
2,790
(3,047
)
6,044
Total other
(6,048
)
(1,257
)
(23,623
)
(11,161
)
Income before income taxes
26,683
18,720
75,507
32,514
Income tax provision
(7,989
)
(6,239
)
(21,931
)
(8,603
)
Net income
$
18,694
$
12,481
$
53,576
$
23,911
Weighted-average shares outstanding:
Basic
30,097
30,941
30,381
31,219
Diluted
30,284
31,159
30,540
31,487
Earnings per common share:
Basic
$
0.62
$
0.40
$
1.76
$
0.77
Diluted
0.62
0.40
1.75
0.76
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Nine Months Ended
September 30, 2023
September 30, 2022
Cash flows from operating activities:
Net income
$
53,576
$
23,911
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation
17,549
21,817
Amortization
34,543
36,470
Asset impairment
1,689
30,126
Gain on lease modifications
(4,349
)
-
Loss on short-term investments and
other
-
19
Loss on derivative liability upon debt
conversion
-
7,456
Unrealized foreign currency transactions
gain, net
(442
)
(1,700
)
Deferred income taxes
(12,504
)
(16,457
)
Stock-based compensation
21,253
20,778
Subtotal
111,315
122,420
Changes in operating assets and
liabilities, net of acquired amounts:
Trade accounts receivable, net
(33,351
)
(22,026
)
Other current and non-current assets and
liabilities
(11,449
)
(16,430
)
Income taxes payable/receivable
(4,650
)
(7,188
)
Trade accounts payable and accrued
liabilities
(24,158
)
(67,053
)
Deferred revenue
14,658
(150
)
Net cash provided by operating
activities
52,365
9,573
Cash flows from investing activities:
Purchases of software, property and
equipment
(22,940
)
(31,564
)
Proceeds from sale/maturity of short-term
investments
71
27,447
Net cash used in investing activities
(22,869
)
(4,117
)
Cash flows from financing activities:
Proceeds from issuance of common stock
2,541
2,217
Payment of cash dividends
(26,231
)
(25,396
)
Repurchase of common stock
(116,418
)
(73,380
)
Deferred acquisition payments
(3,220
)
(1,959
)
Proceeds from long-term debt
470,000
290,000
Payments on long-term debt
(310,625
)
(247,926
)
Purchase of capped call transactions
related to convertible notes
(34,298
)
-
Payments of deferred financing costs
(13,518
)
-
Settlement and merchant reserve
activity
(46,196
)
(13,931
)
Net cash used in financing activities
(77,965
)
(70,375
)
Effect of exchange rate fluctuations on
cash, cash equivalents, and restricted cash
(448
)
(7,689
)
Net decrease in cash, cash equivalents,
and restricted cash
(48,917
)
(72,608
)
Cash, cash equivalents, and restricted
cash, beginning of period
389,018
391,902
Cash, cash equivalents, and restricted
cash, end of period
$
340,101
$
319,294
Supplemental disclosures of cash flow
information:
Cash paid during the period for-
Interest
$
21,772
$
12,367
Income taxes
39,136
31,817
Reconciliation of cash, cash equivalents,
and restricted cash:
Cash and cash equivalents
$
146,730
$
146,685
Settlement and merchant reserve assets
193,371
172,609
Total cash, cash equivalents, and
restricted cash
$
340,101
$
319,294
EXHIBIT 1
CSG SYSTEMS INTERNATIONAL,
INC.
SUPPLEMENTAL REVENUE
ANALYSIS
Revenue by
Significant Customers: 10% or more of Revenue
Quarter Ended
Quarter Ended
Quarter Ended
September 30, 2023
June 30, 2023
September 30, 2022
Amount
% of Revenue
Amount
% of Revenue
Amount
% of Revenue
Charter
$
59,432
21
%
$
60,175
21
%
$
57,974
21
%
Comcast
53,653
19
%
53,757
19
%
53,533
20
%
Revenue by
Vertical
Quarter Ended
Quarter Ended
Quarter Ended
September 30,
June 30,
September 30,
2023
2023
2022
Broadband/Cable/Satellite
53
%
54
%
55
%
Telecommunications
20
%
18
%
20
%
All other
27
%
28
%
25
%
Total revenue
100
%
100
%
100
%
Revenue by
Geography
Quarter Ended
Quarter Ended
Quarter Ended
September 30,
June 30,
September 30,
2023
2023
2022
Americas
86
%
87
%
86
%
Europe, Middle East and Africa
9
%
9
%
10
%
Asia Pacific
5
%
4
%
4
%
Total revenue
100
%
100
%
100
%
EXHIBIT 2 CSG SYSTEMS INTERNATIONAL,
INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES
Use of Non-GAAP Financial Measures and
Limitations
To supplement its condensed consolidated financial statements
presented in accordance with generally accepted accounting
principles (GAAP), CSG uses non-GAAP operating income, non-GAAP
adjusted operating margin percentage, non-GAAP EPS, non-GAAP
adjusted EBITDA, and non-GAAP free cash flow. CSG believes that
these non-GAAP financial measures, when reviewed in conjunction
with its GAAP financial measures, provide investors with greater
transparency to the information used by CSG’s management in its
financial and operational decision making. CSG uses these non-GAAP
financial measures for the following purposes:
- Certain internal financial planning, reporting, and
analysis;
- Forecasting and budgeting;
- Certain management compensation incentives; and
- Communications with CSG’s Board of Directors, stockholders,
financial analysts, and investors.
These non-GAAP financial measures are provided with the intent
of providing investors with the following information:
- A more complete understanding of CSG’s underlying operational
results, trends, and cash generating capabilities;
- Consistency and comparability with CSG’s historical financial
results; and
- Comparability to similar companies, many of which present
similar non-GAAP financial measures to investors.
Non-GAAP financial measures are not measures of performance
under GAAP, and therefore should not be considered in isolation or
as a substitute for GAAP financial information. Limitations with
the use of non-GAAP financial measures include the following
items:
- Non-GAAP financial measures are not based on any comprehensive
set of accounting rules or principles;
- The way in which CSG calculates non-GAAP financial measures may
differ from the way in which other companies calculate similar
non-GAAP financial measures;
- Non-GAAP financial measures do not include all items of income
and expense that affect CSG’s operations and that are required by
GAAP to be included in financial statements;
- Certain adjustments to CSG’s non-GAAP financial measures result
in the exclusion of items that are recurring and will be reflected
in CSG’s financial statements in future periods; and
- Certain charges excluded from CSG’s non-GAAP financial measures
are cash expenses, and therefore do impact CSG’s cash
position.
CSG compensates for these limitations by relying primarily on
its GAAP results and using non-GAAP financial measures as a
supplement only. Additionally, CSG provides specific information
regarding the treatment of GAAP amounts considered in preparing the
non-GAAP financial measures and reconciles each n on-GAAP financial
measure to the most directly comparable GAAP measure.
Non-GAAP Financial Measures: Basis of
Presentation
The table below outlines the exclusions from CSG’s non-GAAP
financial measures:
Non-GAAP Exclusions
Operating Income
Adjusted Operating Margin
Percentage
EPS
Transaction fees
—
X
—
Restructuring and reorganization
charges
X
X
X
Executive transition costs
X
X
X
Acquisition-related expenses:
Amortization of acquired intangible
assets
X
X
X
Transaction-related costs
X
X
X
Stock-based compensation
X
X
X
Gain (loss) on debt
extinguishment/conversion
—
—
X
Gain (loss) on acquisitions or
dispositions
—
—
X
Unusual income tax matters
—
—
X
CSG believes that excluding certain items in calculating its
non-GAAP financial measures provides meaningful supplemental
information regarding CSG’s performance and these items are
excluded for the following reasons:
- Transaction fees are primarily comprised of fees paid to
third-party payment processors and financial institutions and
interchange fees under CSG’s payment services contracts.
Transaction fees are included in revenue in CSG’s Income Statement
(and not netted against revenue) because CSG maintains control and
acts as principal over the integrated service provided under its
payment services customer contracts. However, CSG excludes expense
associated with transaction fees from the numerator and denominator
in calculating its non-GAAP adjusted operating margin percentage in
order to provide comparability with historical and future periods
and with its peer group and competitors.
- Restructuring and reorganization charges are expenses that
result from cost reduction initiatives and/or significant changes
to CSG’s business, to include such things as involuntary employee
terminations, changes in management structure, divestitures of
businesses, facility consolidations and abandonments, and
fundamental reorganizations impacting operational focus and
direction. These charges are not considered reflective of CSG’s
recurring business operating results. The exclusion of these items
in calculating CSG’s non-GAAP financial measures allows management
and investors an additional means to compare CSG’s current
financial results with historical and future periods.
- Executive transition costs include expenses incurred related to
a departure of a CSG executive officer under the terms of the
related separation agreement. These types of costs are not
considered reflective of CSG’s recurring business operating
results. The exclusion of these costs in calculating CSG’s non-GAAP
financial measures allows management and investors an additional
means to compare CSG’s current financial results with historical
and future periods.
- Acquisition-related expenses include amortization of acquired
intangible assets and transaction-related costs, to include
earn-out compensation. Transaction-related costs, which typically
include expenses related to legal, accounting, and other
professional services, are direct and incremental expenses related
to business acquisitions, and thus, are not considered reflective
of CSG’s recurring business operating results. The total amount of
acquisition-related expenses can vary significantly between periods
based on the number and size of acquisition activities, previously
acquired intangible assets becoming fully amortized, and ultimate
realization of earn-out compensation. In addition, the timing of
these expenses may not directly correlate with underlying
performance of the CSG’s operations. Therefore, the exclusion of
acquisition-related expenses in calculating CSG’s non-GAAP
financial measures allows management and investors an additional
means to compare CSG’s current financial results with historical
and future periods.
- Stock-based compensation results from CSG’s issuance of equity
awards to its employees under incentive compensation programs. The
amount of this incentive compensation in any period is not
generally linked to the level of performance by employees or CSG.
The exclusion of these expenses in calculating CSG’s non-GAAP
financial measures allows management and investors an additional
means to evaluate the non-cash expense related to compensation
included in CSG’s results of operations, and therefore, the
exclusion of this item allows investors to further evaluate the
cash generating capabilities of CSG’s business.
- Gains and losses related to the extinguishment/conversion of
debt can be as a result of the refinancing of CSG’s credit
agreement and/or repurchase, conversion, or settlement of CSG’s
convertible notes. These activities, to include any derivative
activity related to debt conversions, are not considered reflective
of CSG’s recurring business operating results. Any resulting gain
or loss is generally non-cash income or expense, and therefore, the
exclusion of these items allows investors to further evaluate the
cash impact of these activities for cash flow and liquidity
purposes. In addition, the exclusion of these gains and losses in
calculating CSG’s non-GAAP EPS allows management and investors an
additional means to compare CSG’s current operating results with
historical and future periods.
- Gains or losses related to the acquisition or disposition of
certain of CSG’s business activities are not considered reflective
of CSG’s recurring business operating results. Any resulting gain
or loss is generally non-cash income or expense, and therefore, the
exclusion of these items allows investors to further evaluate the
cash impact of these activities for cash flow and liquidity
purposes. In addition, the exclusion of these gains and losses in
calculating CSG’s non-GAAP EPS allows management and investors an
additional means to compare CSG’s current operating results with
historical and future periods.
- Unusual items within CSG’s quarterly and/or annual income tax
expense can occur from such things as income tax accounting timing
matters, income taxes related to unusual events, or as a result of
different treatment of certain items for book accounting and income
tax purposes. Consideration of such items in calculating CSG’s
non-GAAP financial measures allows management and investors an
additional means to compare CSG’s current financial results with
historical and future periods.
CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash
flow. Management believes non-GAAP adjusted EBITDA is a useful
measure to investors in evaluating CSG’s operating performance,
debt servicing capabilities, and enterprise valuation. CSG defines
non-GAAP adjusted EBITDA as income before interest, income taxes,
depreciation, amortization, stock-based compensation, foreign
currency transaction adjustments, acquisition-related expenses, and
unusual items, such as restructuring and reorganization charges,
executive transition costs, gains and losses related to the
extinguishment of debt, and gains and losses on acquisitions or
dispositions, as discussed above. Additionally, management uses
non-GAAP free cash flow, among other measures, to assess its
financial performance and cash generating capabilities, and
believes that it is useful to investors because it shows CSG’s cash
available to service debt, make strategic acquisitions and
investments, repurchase its common stock, pay cash dividends, and
fund ongoing operations. CSG defines non-GAAP free cash flow as net
cash flows from operating activities less the purchases of
software, property and equipment.
Non-GAAP Financial
Measures
Non-GAAP Operating Income and Non-GAAP
Adjusted Operating Margin Percentage:
The reconciliation of GAAP operating income to non-GAAP
operating income, and calculation of CSG’s non- GAAP adjusted
operating margin percentage, for the indicated periods are as
follows (in thousands, except percentages):
Quarter Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Non-GAAP Operating Income
GAAP operating income
$
32,731
$
19,977
$
99,130
$
43,675
Restructuring and reorganization charges
(1)
1,152
14,193
8,421
46,304
Executive transition costs
1,148
27
1,148
1,302
Acquisition-related expenses:
Amortization of acquired intangible
assets
2,996
3,405
9,203
11,017
Transaction-related costs
(40
)
495
2,122
469
Stock-based compensation (1)
7,216
8,650
21,640
20,906
Non-GAAP operating income
$
45,203
$
46,747
$
141,664
$
123,673
Non-GAAP Adjusted Operating Margin
Percentage
Revenue
$
286,868
$
273,308
$
871,934
$
799,876
Less: Transaction fees (2)
(20,314
)
(18,177
)
(63,463
)
(54,928
)
Revenue less transaction fees
$
266,554
$
255,131
$
808,471
$
744,948
Non-GAAP adjusted operating margin
percentage
17.0
%
18.3
%
17.5
%
16.6
%
(1)
Restructuring and reorganization charges
include stock-based compensation, which is not included in the
stock-based compensation line in the tables above and following,
and depreciation, which has not been recorded to the depreciation
line item on CSG’s Income Statement.
(2)
Transaction fees are primarily comprised
of fees paid to third-party payment processors and financial
institutions and interchange fees under CSG’s payment services
contracts. Transaction fees are included in revenue in CSG's Income
Statement (and not netted against revenue) because CSG maintains
control and acts as principal over the integrated service provided
under its payment services customer contracts. However, CSG
excludes expense associated with transaction fees from the
numerator and denominator in calculating its non-GAAP adjusted
operating margin percentage in order to provide comparability with
historical and future periods and with its peer group and
competitors.
Non-GAAP EPS:
The reconciliations of GAAP EPS to non-GAAP EPS for the
indicated periods are as follows (in thousands, except per share
amounts):
Quarter Ended
Quarter Ended
September 30, 2023
September 30, 2022
Amounts
EPS (4)
Amounts
EPS (4)
GAAP net income
$
18,694
$
0.62
$
12,481
$
0.40
GAAP income tax provision (3)
7,989
6,239
GAAP income before income taxes
26,683
18,720
Restructuring and reorganization
charges
1,152
14,193
Executive transition costs
1,148
27
Acquisition-related costs:
Amortization of acquired intangible
assets
2,996
3,405
Transaction-related costs
(40
)
495
Stock-based compensation (1)
7,216
8,650
Non-GAAP income before income taxes
39,155
45,490
Non-GAAP income tax provision (3)
(11,159
)
(12,510
)
Non-GAAP net income
$
27,996
$
0.92
$
32,980
$
1.06
Nine Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
Amounts
EPS (4)
Amounts
EPS (4)
GAAP net income
$
53,576
$
1.75
$
23,911
$
0.76
GAAP income tax provision (3)
21,931
8,603
GAAP income before income taxes
75,507
32,514
Restructuring and reorganization
charges
8,421
46,304
Executive transition costs
1,148
1,302
Acquisition-related expenses:
Amortization of acquired intangible
assets
9,203
11,017
Transaction-related costs
2,122
469
Stock-based compensation (1)
21,640
20,906
Loss on extinguishment of debt
-
7,456
Non-GAAP income before income taxes
118,041
119,968
Non-GAAP income tax provision (3)
(33,642
)
(32,991
)
Non-GAAP net income
$
84,399
$
2.76
$
86,977
$
2.76
(3)
For the third quarter and nine months
ended September 30, 2023, the GAAP effective income tax rates were
approximately 30% and 29%, respectively, and the non-GAAP effective
income tax rates were 28.5% for both periods. For the third quarter
and nine months ended September 30, 2022 the GAAP effective income
tax rates were approximately 33% and 26%, respectively, and the
non-GAAP effective income tax rates were 27.5% for both
periods.
(4)
The outstanding diluted shares for the
third quarter and nine months ended September 30, 2023 were 30.3
million and 30.5, respectively, and for the third quarter and nine
months ended September 30, 2022 were 31.2 million and 31.5 million,
respectively.
Non-GAAP Adjusted EBITDA:
CSG’s calculation of non-GAAP adjusted EBITDA and the
reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP
net income is provided below for the indicated periods (in
thousands, except percentages):
Quarter Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
GAAP net income
$
18,694
$
12,481
$
53,576
$
23,911
GAAP income tax provision
7,989
6,239
21,931
8,603
Interest expense (5)
8,036
4,328
23,092
10,286
Loss on derivative liability upon debt
conversion
-
-
-
7,456
Interest and investment income and other,
net
(1,988
)
(3,071
)
531
(6,581
)
GAAP operating income
32,731
19,977
99,130
43,675
Restructuring and reorganization charges
(1)
1,152
14,193
8,421
46,304
Executive transition costs
1,148
27
1,148
1,302
Acquisition-related expenses:
Amortization of acquired intangible assets
(6)
2,996
3,405
9,203
11,017
Transaction-related costs
(40
)
495
2,122
469
Stock-based compensation (1)
7,216
8,650
21,640
20,906
Amortization of other intangible assets
(6)
3,438
3,530
10,274
10,741
Amortization of customer contract costs
(6)
4,997
3,829
14,390
14,150
Depreciation (1)
5,862
5,896
17,155
17,685
Non-GAAP adjusted EBITDA
$
59,500
$
60,002
$
183,483
$
166,249
Non-GAAP adjusted EBITDA as a percentage
of revenue less transaction fees (2)
22.3
%
23.5
%
22.7
%
22.3
%
(5)
Interest expense includes amortization of
deferred financing costs as provided in Note 6 below.
(6)
Amortization on the statement of cash
flows is made up of the following items for the indicated periods
(in thousands):
Quarter Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Amortization of acquired intangible
assets
$
2,996
$
3,405
$
9,203
$
11,017
Amortization of other intangible
assets
3,438
3,530
10,274
10,741
Amortization of customer contract
costs
4,997
3,829
14,390
14,150
Amortization of deferred financing
costs
304
186
676
562
Total amortization
$
11,735
$
10,950
$
34,543
$
36,470
Non-GAAP Free Cash Flow:
CSG’s calculation of non-GAAP free cash flow and the
reconciliation of CSG’s non-GAAP free cash flow measure to cash
flows from operating activities are provided below for the
indicated periods (in thousands):
Quarter Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Cash flows from operating activities
$
24,582
$
22,838
$
52,365
$
9,573
Purchases of software, property and
equipment
(6,512
)
(11,917
)
(22,940
)
(31,564
)
Non-GAAP free cash flow
$
18,070
$
10,921
$
29,425
$
(21,991
)
Non-GAAP Financial Measures – 2023
Financial Guidance
Non-GAAP Operating Income and Non-GAAP
Adjusted Operating Margin Percentage:
The reconciliation of GAAP operating income to non-GAAP
operating income, and calculation of non-GAAP adjusted operating
margin percentage, as included in CSG’s 2023 full year financial
guidance, is as follows (in thousands, except percentages):
2023 Guidance Range
Low Range
High Range
Non- GAAP Operating Income
GAAP operating income
$
124,200
$
131,400
Restructuring and reorganization
charges
8,400
8,400
Executive Transition Costs
1,300
1,300
Acquisition-related expenses:
Amortization of acquired intangible
assets
12,200
12,200
Transaction-related costs
2,100
2,100
Stock-based compensation
30,700
30,700
Non-GAAP operating income
$
178,900
$
186,100
Non-GAAP Operating Margin
Percentage
Revenue
$
1,150,000
$
1,175,000
Less: Transaction fees
(82,000
)
(87,000
)
Revenue less transaction fees
$
1,068,000
$
1,088,000
Non-GAAP adjusted operating margin
percentage
16.75
%
17.1
%
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in
CSG’s 2023 full year financial guidance is as follows (in
thousands, except per share amounts):
2023 Guidance Range
Low Range
High Range
Amounts
EPS (8)
Amounts
EPS (8)
GAAP net income
$
66,200
$
2.19
$
71,200
$
2.35
GAAP income tax provision (7)
27,200
29,400
GAAP income before income taxes
93,400
100,600
Restructuring and reorganization
charges
8,400
8,400
Executive Transition Costs
1,300
1,300
Acquisition-related expenses:
Amortization of acquired intangible
assets
12,200
12,200
Transaction-related costs
2,100
2,100
Stock-based compensation
30,700
30,700
Non-GAAP income before income taxes
148,100
155,300
Non-GAAP income tax provision (7)
(42,200
)
(43,400
)
Non-GAAP net income
$
105,900
$
3.50
$
111,900
$
3.70
(7)
For 2023, the estimated GAAP and non-GAAP
effective income tax rates are expected to be approximately 29% and
approximately 28% - 28.5%, respectively.
(8)
The weighted-average diluted shares
outstanding are expected to be approximately 30 million.
Non-GAAP Adjusted EBITDA:
CSG’s calculation of non-GAAP adjusted EBITDA and the
reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP
net income is provided below for CSG’s 2023 full year financial
guidance (in thousands, except percentages):
2023 Guidance Range
Low Range
High Range
GAAP net income
$
66,200
$
71,200
GAAP income tax provision (7)
27,200
29,400
Interest expense
30,900
30,900
Interest and investment income
(3,100
)
(3,100
)
Other, net
3,000
3,000
GAAP operating income
124,200
131,400
Restructuring and reorganization
charges
8,400
8,400
Executive transition costs
1,300
1,300
Acquisition-related expenses:
Amortization of acquired intangible
assets
12,200
12,200
Transaction-related costs
2,100
2,100
Stock-based compensation
30,700
30,700
Amortization of other intangible
assets
13,500
13,500
Amortization of client contract costs
20,300
20,300
Depreciation
24,800
24,800
Non-GAAP adjusted EBITDA
$
237,500
$
244,700
Non-GAAP adjusted EBITDA as a percentage
of revenue less transaction fees (2)
22.2
%
22.5
%
Non-GAAP Free Cash Flow:
CSG’s calculation of non-GAAP free cash flow and the
reconciliation of CSG’s non-GAAP free cash flow measure to cash
flows from operating activities is provided below for CSG’s 2023
full year financial guidance (in thousands):
2023 Guidance Range
Low Range
High Range
Cash flows from operating activities
$
102,000
$
148,000
Purchases of software, property and
equipment
(22,000
)
(28,000
)
Non-GAAP free cash flow
$
80,000
$
120,000
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231101121909/en/
John Rea, Investor Relations (210) 687-4409 E-mail:
john.rea@csgi.com
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