0001005757false00010057572024-08-072024-08-07

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 7, 2024

CSG SYSTEMS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

0-27512

47-0783182

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

169 Inverness Dr W, Suite 300, Englewood, CO

80112

(Address of principal executive offices)

(Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

 

CSGS

 

NASDAQ Stock Market LLC.

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company

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

 

 

 


 

Item 2.02. Results of Operations and Financial Condition.

The following information is furnished pursuant to Item 2.02 (Results of Operations and Financial Condition). This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

On August 7, 2024, CSG Systems International, Inc. (“CSG”) issued a press release relating to the results of its operations for the quarter and six months ended June 30, 2024. A copy of such press release is attached to this Form 8-K as Exhibit 99.1 and hereby incorporated by reference.

 

In the attached press release, CSG makes reference to non-GAAP financial measures. 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. There are limitations with the use of non-GAAP financial measures since they are not based on any comprehensive set of accounting rules or principles, and 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. A more detailed discussion of CSG’s use of non-GAAP financial measures, to include reconciliations of the non-GAAP financial measures to the comparable GAAP financial measures, is contained in the attached press release and is posted to the Company’s website at www.csgi.com.


9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1

Press release of CSG Systems International, Inc. dated August 7, 2024

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 


 

1

 


 

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 hereunto duly authorized.

 

 

 

 

CSG SYSTEMS INTERNATIONAL, INC.

 

 

 

 

Date:

August 7, 2024

By:

/s/ Lori J. Szwanek

 

 

 

Lori J. Szwanek
Chief Accounting Officer

 

 

 

 

 


 

img210581129_0.jpg 

FOR IMMEDIATE RELEASE

 

PRESS RELEASE

CSG Systems INTERNATIONAL reports

SECOND Quarter 2024 RESULTS

DENVER--(August 7, 2024)CSG (NASDAQ: CSGS) today reported results for the quarter ended June 30, 2024.

Exciting Customer Wins including Telenor Denmark, Telstra, One New Zealand & Lyse Norway

Raising 2024 Profitability and Non-GAAP EPS Guidance Targets; Reiterating All Others

Board of Directors Authorized Additional $100 Million Share Repurchase Program

Financial Results:

Second quarter 2024 financial results:

Total revenue was $290.3 million.
GAAP operating income was $25.4 million, or an operating margin of 8.8%, and non-GAAP operating income was $46.1 million, or a non-GAAP adjusted operating margin of 17.3%.
GAAP earnings per diluted share (EPS) was $0.48 and non-GAAP EPS was $1.02.
Cash flows from operations were $43.1 million, with non-GAAP free cash flow of $38.8 million.

Shareholder Returns:

CSG declared its quarterly cash dividend of $0.30 per share of common stock, or a total of approximately $9 million, to shareholders.
During the second quarter of 2024, CSG repurchased under its stock repurchase program, approximately 219,000 shares of its common stock for approximately $10 million.
In August, CSG’s Board of Directors increased the authorization under CSG’s existing Stock Repurchase Program by an additional $100 million.

Business Activities:

During the quarter, CSG closed two acquisitions at a total combined purchase price of approximately $33 million.

CSG Systems International, Inc.

August 7, 2024

Page 2

“Team CSG delivered solid results in a challenging macroeconomic environment during the first half of 2024. With this backdrop, we are thrilled to raise our profitability and non-GAAP EPS guidance targets for the full year. Further, we are very excited to announce several important new logo sales wins and deal expansions, including with Telenor Denmark, One New Zealand (formerly Vodafone New Zealand), Lyse Norway, Telstra, and many others. We also achieved another high-water mark on our industry diversification strategy as 31% of our revenue now comes from bigger, faster growing industry verticals outside of the Communication Service Providers (“CSPs”) space versus only 7% of our revenue from these other industry verticals in 2017,” said Brian Shepherd, President and Chief Executive Officer of CSG. “From a financial perspective, we are excited that the new sales wins combined with our proven ability to expand CSG’s operating leverage will enable us to grow profitability and non-GAAP EPS even faster than expected when we started the year, which gives our Board of Directors the confidence to authorize an additional $100 million share repurchase plan on top of the $480 million we have returned to shareholders via dividends and share repurchases since 2020.”

Financial Overview (unaudited)

(in thousands, except per share amounts and percentages):

Quarter Ended June 30,

Six Months Ended June 30,

2024

2023

Percent Changed

2024

2023

Percent Changed

GAAP Results:

Revenue

$

290,318

$

286,327

1.4

%

$

585,453

$

585,066

0.1

%

Operating Income

25,420

28,206

(9.9

%)

57,217

66,399

(13.8

%)

Operating Margin

    Percentage

8.8

%

9.9

%

9.8

%

11.3

%

EPS

$

0.48

$

0.45

6.7

%

$

1.16

$

1.14

1.8

%

Non-GAAP Results:

Operating Income

$

46,141

$

42,950

7.4

%

$

91,009

$

96,461

(5.7

%)

Adjusted Operating Margin

    Percentage

17.3

%

16.2

%

17.0

%

17.8

%

EPS

$

1.02

$

0.80

27.5

%

$

2.02

$

1.84

9.8

%

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 second quarter of 2024 was $290.3 million, a 1.4% increase when compared to revenue of $286.3 million for the second quarter of 2023. The increase in revenue can be attributed to the continued growth of our SaaS and related solutions revenue in addition to the approximately $3 million of revenue generated from the acquired businesses which offset lower software and services revenue for the quarter.

GAAP operating income for the second quarter of 2024 was $25.4 million, or 8.8% of total revenue, compared to $28.2 million, or 9.9% of total revenue, for the second quarter of 2023. The decrease in operating income is mainly attributed to the $5 million increase in restructuring and reorganization charges in the second quarter of 2024 related to a reduction in CSG’s global workforce. This workforce reduction is part of initiatives to better align and allocate CSG’s resources to areas of the business where CSG has identified growth opportunities.


CSG Systems International, Inc.

August 7, 2024

Page 3

GAAP EPS for the second quarter of 2024 was $0.48, compared to $0.45 for the second quarter of 2023, with the second quarter of 2024 benefiting primarily from a lower share count.

Non-GAAP Results: Non-GAAP operating income for the second quarter of 2024 was $46.1 million, or a non-GAAP adjusted operating margin of 17.3%, compared to $43.0 million, or a non-GAAP adjusted operating margin of 16.2% for the second quarter of 2023. The increase in non-GAAP operating income and non-GAAP adjusted operating margin can be primarily attributed to lower non-GAAP operating expenses.

Non-GAAP EPS for the second quarter of 2024 was $1.02 compared to $0.80 for the second quarter of 2023. The increase in non-GAAP EPS is mainly due to the higher non-GAAP operating income, discussed above, and the lower share count.

Balance Sheet and Cash Flows

Cash and cash equivalents as of June 30, 2024 were $110.4 million compared to $120.8 million as of March 31, 2024 and $186.3 million as of December 31, 2023. CSG had net cash flows provided by operations for the second quarters ended June 30, 2024 and 2023 of $43.1 million and $12.4 million, respectively, and non-GAAP free cash flow of $38.8 million and $4.7 million, respectively.

Summary of Financial Guidance

CSG is revising its financial guidance for the full year 2024, as follows:

As of August 7, 2024

Previous

GAAP Measures:

Revenue

No change

$1,200 - $1,240 million

Non-GAAP Measures:

Adjusted Operating Margin Percentage

17.3% - 17.7%

17.0% - 17.4%

EPS

$4.05 - $4.35

$3.85 - $4.15

Adjusted EBITDA

$247 - $257 million

$245 - $255 million

Free Cash Flow

No change

$95 - $135 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, August 7, 2024 at 5:00 p.m. ET, to discuss CSG’s second quarter of 2024 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.


CSG Systems International, Inc.

August 7, 2024

Page 4

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 a significant portion of its revenue from a limited number of customers, with 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.

For more information, contact:

John Rea, Head Investor Relations, Treasury and ESG Reporting

(210) 687-4409

E-mail: John.Rea@csgi.com

 

Davis Barker, Manager Investor Relations & Corporate Development

(303) 884-4506

E-mail: Davis.Barker@csgi.com

 


CSG Systems International, Inc.

August 7, 2024

Page 5

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands)

June 30,

2024

December 31,

2023

ASSETS

Current assets:

Cash and cash equivalents

$

110,435

$

186,264

Settlement and merchant reserve assets

232,054

274,699

Trade accounts receivable:

Billed, net of allowance of $4,720 and $5,432

266,214

267,680

Unbilled

84,570

82,163

Income taxes receivable

10,028

1,345

Other current assets

55,740

50,075

Total current assets

759,041

862,226

Non-current assets:

Property and equipment, net of depreciation of $131,573 and $121,816

59,111

65,545

Operating lease right-of-use assets

28,656

34,283

Software, net of amortization of $164,369 and $157,601

21,408

14,224

Goodwill

317,129

308,596

Acquired customer contracts, net of amortization of $128,867 and $126,469

46,818

35,879

Customer contract costs, net of amortization of $44,140 and $42,094

57,128

54,421

Deferred income taxes

54,934

57,855

Other assets

9,063

10,017

Total non-current assets

594,247

580,820

Total assets

$

1,353,288

$

1,443,046

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

7,500

$

7,500

Operating lease liabilities

14,841

15,946

Customer deposits

35,993

41,035

Trade accounts payable

52,862

46,406

Accrued employee compensation

49,765

84,380

Settlement and merchant reserve liabilities

229,636

273,817

Deferred revenue

56,145

54,199

Income taxes payable

645

4,104

Other current liabilities

29,057

33,449

Total current liabilities

476,444

560,836

Non-current liabilities:

Long-term debt, net of unamortized discounts of $13,893 and $15,628

532,982

534,997

Operating lease liabilities

27,722

34,360

Deferred revenue

22,375

23,447

Income taxes payable

3,241

3,041

Deferred income taxes

122

123

Other non-current liabilities

17,073

12,916

Total non-current liabilities

603,515

608,884

    Total liabilities

1,079,959

1,169,720

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; 29,591 and 29,541 shares

     outstanding

717

713

Additional paid-in capital

499,995

490,947

Treasury stock, at cost; 40,802 and 40,398 shares

(1,155,542

)

(1,136,055

)

Accumulated other comprehensive income (loss):

Unrealized gain on short-term investments, net of tax

-

1

Cumulative foreign currency translation adjustments

(55,629

)

(50,414

)

Accumulated earnings

983,788

968,134

Total stockholders' equity

273,329

273,326

Total liabilities and stockholders' equity

$

1,353,288

$

1,443,046

 


CSG Systems International, Inc.

August 7, 2024

Page 6

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

 

Quarter Ended

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Revenue

$

290,318

$

286,327

$

585,453

$

585,066

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

152,892

151,142

310,779

306,163

Other operating expenses:

Research and development

38,411

36,645

74,506

72,109

Selling, general and administrative

61,159

62,686

122,881

121,833

Depreciation

5,337

5,573

10,973

11,293

Restructuring and reorganization charges

7,099

2,075

9,097

7,269

Total operating expenses

264,898

258,121

528,236

518,667

Operating income

25,420

28,206

57,217

66,399

Other income (expense):

Interest expense

(7,698

)

(7,837

)

(15,204

)

(15,056

)

Interest income

2,103

772

4,719

1,341

Other, net

174

(1,428

)

732

(3,860

)

Total other

(5,421

)

(8,493

)

(9,753

)

(17,575

)

Income before income taxes

19,999

19,713

47,464

48,824

Income tax provision

(6,170

)

(5,759

)

(14,168

)

(13,942

)

Net income

$

13,829

$

13,954

$

33,296

$

34,882

Weighted-average shares outstanding:

Basic

28,546

30,629

28,531

30,524

Diluted

28,600

30,726

28,698

30,668

Earnings per common share:

Basic

$

0.48

$

0.46

$

1.17

$

1.14

Diluted

0.48

0.45

1.16

1.14

 

 

 

 

 

 

 

 

 


CSG Systems International, Inc.

August 7, 2024

Page 7

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

Six Months Ended

June 30, 2024

June 30, 2023

Cash flows from operating activities:

Net income

$

33,296

$

34,882

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

Depreciation

11,409

11,506

Amortization

24,147

22,808

Asset impairment

-

1,689

Gain on lease modifications

-

(3,812

)

Unrealized foreign currency transaction (gain) loss, net

(254

)

241

Deferred income taxes

2,311

(4,673

)

Stock-based compensation

16,371

14,056

Subtotal

87,280

76,697

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

Trade accounts receivable, net

892

(7,789

)

Other current and non-current assets and liabilities

(11,154

)

(16,083

)

Income taxes payable/receivable

(11,937

)

(7,235

)

Trade accounts payable and accrued liabilities

(52,596

)

(26,853

)

Deferred revenue

1,269

9,046

Net cash provided by operating activities

13,754

27,783

Cash flows from investing activities:

Purchases of software, property, and equipment

(9,073

)

(16,428

)

Proceeds from sale/maturity of short-term investments

-

71

Business combinations, net of cash and settlement assets acquired of $46,432 and zero

17,293

-

Net cash provided by (used in) investing activities

8,220

(16,357

)

Cash flows from financing activities:

Proceeds from issuance of common stock

1,618

1,664

Payment of cash dividends

(18,088

)

(17,712

)

Repurchase of common stock

(27,943

)

(9,418

)

Deferred acquisition payments

(488

)

(1,220

)

Proceeds from long-term debt

15,000

30,000

Payments on long-term debt

(18,750

)

(18,750

)

Payments on financing obligations

(469

)

-

Settlement and merchant reserve activity

(88,703

)

(63,107

)

Net cash used in financing activities

(137,823

)

(78,543

)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

(2,438

)

708

Net decrease in cash, cash equivalents, and restricted cash

(118,287

)

(66,409

)

Cash, cash equivalents, and restricted cash, beginning of period

463,876

389,018

Cash, cash equivalents, and restricted cash, end of period

$

345,589

$

322,609

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

$

13,566

$

14,672

Income taxes

23,822

23,720

Non-cash investing and financing activities:

Software, property, and equipment included in current and noncurrent liabilities

9,017

-

Reconciliation of cash, cash equivalents, and restricted cash:

Cash and cash equivalents

$

110,435

$

146,212

Settlement and merchant reserve assets

232,054

176,397

Restricted cash included in current and non-current assets

3,100

-

Total cash, cash equivalents, and restricted cash

$

345,589

$

322,609

 


CSG Systems International, Inc.

August 7, 2024

Page 8

EXHIBIT 1

CSG SYSTEMS INTERNATIONAL, INC.

SUPPLEMENTAL REVENUE ANALYSIS

Revenue by Significant Customers: 10% or more of Revenue

 

Quarter Ended

Quarter Ended

Quarter Ended

June 30, 2024

March 31, 2024

June 30, 2023

Amount

% of Revenue

Amount

% of Revenue

Amount

% of Revenue

Charter

$

60,629

21

%

$

60,849

21

%

$

60,175

21

%

Comcast

54,576

19

%

52,804

18

%

53,757

19

%

 

Revenue by Vertical

Quarter Ended

Quarter Ended

Quarter Ended

June 30, 2024

March 31, 2024

June 30, 2023

Broadband/Cable/Satellite

53

%

51

%

54

%

Telecommunications

16

%

19

%

18

%

All other

31

%

30

%

28

%

Total revenue

100

%

100

%

100

%

 

Revenue by Geography

Quarter Ended

Quarter Ended

Quarter Ended

June 30, 2024

March 31, 2024

June 30, 2023

Americas

89

%

86

%

87

%

Europe, Middle East and Africa

6

%

9

%

9

%

Asia Pacific

5

%

5

%

4

%

Total revenue

100

%

100

%

100

%

 

 

 

 

 


CSG Systems International, Inc.

August 7, 2024

Page 9

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 non-GAAP financial measure to the most directly comparable GAAP measure.


CSG Systems International, Inc.

August 7, 2024

Page 10

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.

CSG Systems International, Inc.

August 7, 2024

Page 11

• 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 Systems International, Inc.

August 7, 2024

Page 12

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 June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Non-GAAP Operating Income

GAAP operating income

$

25,420

$

28,206

$

57,217

$

66,399

Restructuring and reorganization charges (1)

7,099

2,075

9,097

7,269

Executive transition costs

-

-

352

-

Acquisition-related expenses:

Amortization of acquired intangible assets

3,393

2,998

6,245

6,207

Transaction-related costs

1,036

2,004

1,036

2,162

Stock-based compensation (1)

9,193

7,667

17,062

14,424

Non-GAAP operating income

$

46,141

$

42,950

$

91,009

$

96,461

Non-GAAP Adjusted Operating Margin Percentage

Revenue

$

290,318

$

286,327

$

585,453

$

585,066

Less: Transaction fees (2)

(24,207

)

(21,176

)

(49,269

)

(43,149

)

Revenue less transaction fees

$

266,111

$

265,151

$

536,184

$

541,917

Non-GAAP adjusted operating margin percentage

17.3

%

16.2

%

17.0

%

17.8

%

(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.

CSG Systems International, Inc.

August 7, 2024

Page 13

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

June 30, 2024

June 30, 2023

Amounts

EPS (4)

Amounts

EPS (4)

GAAP net income

$

13,829

$

0.48

$

13,954

$

0.45

GAAP income tax provision (3)

6,170

5,759

GAAP income before income taxes

19,999

19,713

Restructuring and reorganization charges (1)

7,099

2,075

Acquisition-related costs:

Amortization of acquired intangible assets

3,393

2,998

Transaction-related costs

1,036

2,004

Stock-based compensation (1)

9,193

7,667

Non-GAAP income before income taxes

40,720

34,457

Non-GAAP income tax provision (3)

(11,605

)

(9,820

)

Non-GAAP net income

$

29,115

$

1.02

$

24,637

$

0.80

 

Six Months Ended

Six Months Ended

June 30, 2024

June 30, 2023

Amounts

EPS (4)

Amounts

EPS (4)

GAAP net income

$

33,296

$

1.16

$

34,882

$

1.14

GAAP income tax provision (3)

14,168

13,942

GAAP income before income taxes

47,464

48,824

Restructuring and reorganization charges (1)

9,097

7,269

Executive transition costs

352

-

Acquisition-related expenses:

Amortization of acquired intangible assets

6,245

6,207

Transaction-related costs

1,036

2,162

Stock-based compensation (1)

17,062

14,424

Non-GAAP income before income taxes

81,256

78,886

Non-GAAP income tax provision (3)

(23,158

)

(22,483

)

Non-GAAP net income

$

58,098

$

2.02

$

56,403

$

1.84

(3) For the second quarter and six months ended June 30, 2024 the GAAP effective income tax rates were approximately 31% and 30%, respectively, and the non-GAAP effective income tax rates were 28.5% for both periods. For the second quarter and six months ended June 30, 2023 the GAAP effective income tax rates were approximately 29% for both periods, and the non-GAAP effective income tax rates were 28.5% for both periods.

(4) The outstanding diluted shares for the second quarter and six months ended June 30, 2024 were 28.6 million and 28.7 million, respectively, and for the second quarter and six months ended June 30, 2023 were 30.7 million, for both periods.


CSG Systems International, Inc.

August 7, 2024

Page 14

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

Six Months Ended

June 30,

June 30,

2024

2023

2024

2023

GAAP net income

$

13,829

$

13,954

$

33,296

$

34,882

GAAP income tax provision

6,170

5,759

14,168

13,942

Interest expense (5)

7,698

7,837

15,204

15,056

Interest and investment income and other, net

(2,277

)

656

(5,451

)

2,519

GAAP operating income

25,420

28,206

57,217

66,399

Restructuring and reorganization charges (1)

7,099

2,075

9,097

7,269

Executive transition costs

-

-

352

-

Acquisition-related expenses:

Amortization of acquired intangible assets (6)

3,393

2,998

6,245

6,207

Transaction-related costs

1,036

2,004

1,036

2,162

Stock-based compensation (1)

9,193

7,667

17,062

14,424

Amortization of other intangible assets (6)

2,880

3,383

5,445

6,836

Amortization of customer contract costs (6)

5,694

4,771

10,722

9,393

Depreciation (1)

5,337

5,573

10,973

11,293

Non-GAAP adjusted EBITDA

$

60,052

$

56,677

$

118,149

$

123,983

Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2)

22.6

%

21.4

%

22.0

%

22.9

%

(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

Six Months Ended

June 30,

June 30,

2024

2023

2024

2023

Amortization of acquired intangible assets

$

3,393

$

2,998

$

6,245

$

6,207

Amortization of other intangible assets

2,880

3,383

5,445

6,836

Amortization of customer contract costs

5,694

4,771

10,722

9,393

Amortization of deferred financing costs

871

185

1,735

372

Total amortization

$

12,838

$

11,337

$

24,147

$

22,808

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

Six Months Ended

June 30,

June 30,

2024

2023

2024

2023

Cash flows from operating activities

$

43,105

$

12,386

$

13,754

$

27,783

Purchases of software, property and equipment

(4,299

)

(7,728

)

(9,073

)

(16,428

)

Non-GAAP free cash flow

$

38,806

$

4,658

$

4,681

$

11,355

 


CSG Systems International, Inc.

August 7, 2024

Page 15

Non-GAAP Financial Measures – 2024 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 2024 full year financial guidance, is as follows (in thousands, except percentages):

2024 Guidance Range

Low Range

High Range

Non-GAAP Operating Income

GAAP operating income

$

131,600

$

141,600

Restructuring and reorganization charges

9,100

9,100

Executive transition costs

400

400

Acquisition-related expenses:

Amortization of acquired intangible assets

14,400

14,400

Transaction-related costs

1,000

1,000

Stock-based compensation

34,200

34,200

Non-GAAP operating income

$

190,700

$

200,700

Non-GAAP Operating Margin Percentage

Revenue

$

1,200,000

$

1,240,000

Less: Transaction fees

(98,000

)

(103,000

)

Revenue less transaction fees

$

1,102,000

$

1,137,000

Non-GAAP adjusted operating margin percentage

17.3

%

17.7

%

Non-GAAP EPS:

The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2024 full year financial guidance is as follows (in thousands, except per share amounts):

2024 Guidance Range

Low Range

High Range

Amounts

EPS (8)

Amounts

EPS (8)

GAAP net income

$

75,700

$

2.59

$

82,900

$

2.88

GAAP income tax provision (7)

31,500

34,300

GAAP income before income taxes

107,200

117,200

Restructuring and reorganization charges

9,100

9,100

Executive transition costs

400

400

Acquisition-related expenses:

Amortization of acquired intangible assets

14,400

14,400

Transaction-related costs

1,000

1,000

Stock-based compensation

34,200

34,200

Non-GAAP income before income taxes

166,300

176,300

Non-GAAP income tax provision (7)

(48,500

)

(51,000

)

Non-GAAP net income

$

117,800

$

4.05

$

125,300

$

4.35

 

(7) For 2024, the estimated effective income tax rates for GAAP and non-GAAP purposes are expected to be approximately 29%.

(8) The weighted-average diluted shares outstanding are expected to be approximately 29 million.


CSG Systems International, Inc.

August 7, 2024

Page 16

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 2024 full year financial guidance (in thousands, except percentages):

2024 Guidance Range

Low Range

High Range

GAAP net income

$

75,700

$

82,900

GAAP income tax provision (7)

31,500

34,300

Interest expense

31,100

31,100

Interest and investment income

(6,700

)

(6,700

)

GAAP operating income

131,600

141,600

Restructuring and reorganization charges

9,100

9,100

Executive transition costs

400

400

Acquisition-related expenses:

Amortization of acquired intangible assets

14,400

14,400

Transaction-related costs

1,000

1,000

Stock-based compensation

34,200

34,200

Amortization of other intangible assets

10,000

10,000

Amortization of client contract costs

22,500

22,500

Depreciation

23,800

23,800

Non-GAAP adjusted EBITDA

$

247,000

$

257,000

Non-GAAP adjusted EBITDA as a percentage of revenue less

    transaction fees (2)

22.4

%

22.6

%

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 2024 full year financial guidance (in thousands):

2024 Guidance Range

Low Range

High Range

Cash flows from operating activities

$

120,000

$

170,000

Purchases of software, property and equipment

(25,000

)

(35,000

)

Non-GAAP free cash flow

$

95,000

$

135,000

 


v3.24.2.u1
Document and Entity Information
Aug. 07, 2024
Cover [Abstract]  
Document Type 8-K
Amendment Flag false
Document Period End Date Aug. 07, 2024
Entity Registrant Name CSG SYSTEMS INTERNATIONAL, INC.
Entity Central Index Key 0001005757
Entity Emerging Growth Company false
Title of 12(b) Security Common Stock, Par Value $0.01 Per Share
Trading Symbol CSGS
Security Exchange Name NASDAQ
Entity File Number 0-27512
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 47-0783182
Entity Address, Address Line One 169 Inverness Dr W
Entity Address, Address Line Two Suite 300
Entity Address, City or Town Englewood
Entity Address, State or Province CO
Entity Address, Postal Zip Code 80112
City Area Code 303
Local Phone Number 200-2000
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false

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