CSG Systems International Reports Second Quarter 2023 Results

DENVER--(BUSINESS WIRE)--CSG (NASDAQ: CSGS) today reported results for the quarter ended June 30, 2023.

H1 Revenue Up 11.1% Organically YoY Representing CSG’s Best H1 Result in Nearly Two Decades

Raising Revenue and Non-GAAP Adjusted Operating Margin % Guidance for 2023

Comcast Contract Extended Through Year-End 2025

Instituting $100 Million Share Repurchase Plan through Year-End 2024

Financial Results:

Second quarter 2023 financial results:

Total revenue was $286.3 million.
GAAP operating income was $28.2 million, or an operating margin of 9.9%, and non-GAAP operating income was $43.0 million, or a non-GAAP adjusted operating margin of 16.2%.
GAAP earnings per diluted share (EPS) was $0.45 and non-GAAP EPS was $0.80.
Cash flows from operations were $12.4 million, with non-GAAP free cash flow of $4.7 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.

“Team CSG had a fantastic start to 2023. We delivered strong financial results across the board highlighted by 11.1% year-over-year organic revenue growth, our strongest first half result in nearly two decades. And with our great start to the year, we are pleased to be raising both our revenue and non-GAAP adjusted operating income margin targets for the full year,” said Brian Shepherd, President and Chief Executive Officer of CSG. “With respect to our 2023 full-year revenue, we now expect to deliver between $1.15 and $1.175 billion, an increase of $20 million on the bottom end of the range and $5 million on the top end. Further, we now anticipate our non-GAAP adjusted operating margin to range between 16.75% and 17.1%. And we are pleased to announce a new $100 million share repurchase program, which will run through year-end 2024.”

Financial Overview (unaudited)

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

	Quarter Ended June 30,									Six Months Ended June 30,
							Percent									Percent
	2023			2022			Changed			2023			2022			Changed
GAAP Results:
Revenue	$	286,327		$	262,168			9.2	%	$	585,066		$	526,568			11.1	%
Operating Income		28,206			7,283			287.3	%		66,399			23,698			180.2	%
Operating Margin Percentage		9.9	%		2.8	%					11.3	%		4.5	%
EPS	$	0.45		$	0.17			164.7	%	$	1.14		$	0.36			216.7	%
Non-GAAP Results:
Operating Income	$	42,950		$	36,740			16.9	%	$	96,461		$	76,926			25.4	%
Adjusted Operating Margin Percentage		16.2	%		15.1	%					17.8	%		15.7	%
EPS	$	0.80		$	0.84			(4.8	%)	$	1.84		$	1.71			7.6	%

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 2023 was $286.3 million, a 9.2% increase when compared to revenue of $262.2 million for the second 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 second quarter of 2023 was $28.2 million, or 9.9% of total revenue, compared to $7.3 million, or 2.8% of total revenue, for the second quarter of 2022. The increase in operating income and operating margin can be mainly attributed to the $16.9 million decrease in restructuring and reorganization charges between years.

GAAP EPS for the second quarter of 2023 was $0.45, as compared to $0.17 for the second quarter of 2022. The increase in GAAP EPS is mainly due to the higher operating income in the second quarter of 2023, discussed above, partially offset by higher interest expense and foreign currency movements.

Non-GAAP Results: Non-GAAP operating income for the second quarter of 2023 was $43.0 million, or a non-GAAP adjusted operating margin of 16.2%, compared to $36.7 million, or a non-GAAP adjusted operating margin of 15.1% for the second quarter of 2022. The increase in non-GAAP operating income and non-GAAP adjusted operating margin can be mainly attributed to the higher revenue discussed above, and improved profitability.

Non-GAAP EPS for the second quarter of 2023 was $0.80 compared to $0.84 for the second quarter of 2022. The decrease in non-GAAP EPS is mainly due to higher interest expense and foreign currency movements, which offset the increase in non-GAAP operating income.

Balance Sheet and Cash Flows

Cash, cash equivalents, and short-term investments as of June 30, 2023 were $146.2 million compared to $167.7 million as of March 31, 2023 and $150.4 million as of December 31, 2022. CSG had net cash flows provided by (used in) operations for the second quarters ended June 30, 2023 and 2022 of $12.4 million and ($7.7) million, respectively, and had non-GAAP free cash flow (deficit) of $4.7 million and ($17.0) million, respectively.

Summary of Financial Guidance

CSG is revising its financial guidance for the full year 2023, as follows:

	As of August 2, 2023	Previous
GAAP Measures:
Revenue	$1,150 - $1,175 million	$1,130 - $1,170 million
Non-GAAP Measures:
Adjusted Operating Margin Percentage	16.75% - 17.1%	16.5% - 17.0%
EPS	$3.42 - $3.58	$3.35 - $3.65
Adjusted EBITDA	$238 - $245 million	$231 - $242 million
Free Cash Flow	No change	$80 - $120 million

Conference Call

CSG will host a conference call on Wednesday, August 2, 2023 at 5:00 p.m. ET, to discuss CSG’s second 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 learn more about how to be a change-maker and industry shaper like our 1,000-plus clients? 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)
	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	146,212		$	150,365
Short-term investments		-			71
Total cash, cash equivalents, and short-term investments		146,212			150,436
Settlement and merchant reserve assets		176,397			238,653
Trade accounts receivable:
Billed, net of allowance of $4,618 and $5,528		256,310			274,189
Unbilled		78,510			52,830
Income taxes receivable		3,770			1,270
Other current assets		64,216			48,577
Total current assets		725,415			765,955
Non-current assets:
Property and equipment, net of depreciation of $113,196 and $105,466		70,457			71,787
Operating lease right-of-use assets		38,810			49,687
Software, net of amortization of $156,240 and $150,337		18,890			22,774
Goodwill		306,641			304,036
Acquired customer contracts, net of amortization of $126,757 and $120,080		40,486			45,417
Customer contract costs, net of amortization of $34,594 and $30,601		54,114			54,735
Deferred income taxes		30,698			26,206
Other assets		7,558			7,956
Total non-current assets		567,654			582,598
Total assets	$	1,293,069		$	1,348,553
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	22,500		$	37,500
Operating lease liabilities		16,624			21,012
Customer deposits		32,713			40,472
Trade accounts payable		37,961			47,720
Accrued employee compensation		62,789			68,321
Settlement and merchant reserve liabilities		174,777			237,810
Deferred revenue		56,468			46,033
Income taxes payable		500			5,455
Other current liabilities		26,770			22,886
Total current liabilities		431,102			527,209
Non-current liabilities:
Long-term debt, net of unamortized discounts of $2,283 and $2,656		402,092			375,469
Operating lease liabilities		38,560			53,207
Deferred revenue		20,792			21,991
Income taxes payable		3,605			3,410
Deferred income taxes		131			117
Other non-current liabilities		13,476			11,901
Total non-current liabilities		478,656			466,095
Total liabilities		909,758			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; 31,751 and 31,269 shares outstanding		713			708
Additional paid-in capital		501,486			495,189
Treasury stock, at cost; 38,210 shares		(1,018,034	)		(1,018,034	)
Accumulated other comprehensive income (loss):
Unrealized gain on short-term investments, net of tax		1			1
Cumulative foreign currency translation adjustments		(54,278	)		(58,830	)
Accumulated earnings		953,423			936,215
Total stockholders' equity		383,311			355,249
Total liabilities and stockholders' equity	$	1,293,069		$	1,348,553

CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED (in thousands, except per share amounts)
	Quarter Ended						Six Months Ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Revenue	$	286,327		$	262,168		$	585,066		$	526,568

Cost of revenue (exclusive of depreciation, shown separately below)		151,142			138,134			306,163			276,552
Other operating expenses:
Research and development		36,645			34,630			72,109			67,611
Selling, general and administrative		62,686			57,465			121,833			114,807
Depreciation		5,573			5,651			11,293			11,789
Restructuring and reorganization charges		2,075			19,005			7,269			32,111
Total operating expenses		258,121			254,885			518,667			502,870
Operating income		28,206			7,283			66,399			23,698
Other income (expense):
Interest expense		(7,837	)		(2,686	)		(15,056	)		(5,958	)
Interest and investment income, net		772			126			1,341			256
Loss on derivative liability upon debt conversion		-			-			-			(7,456	)
Other, net		(1,428	)		2,442			(3,860	)		3,254
Total other		(8,493	)		(118	)		(17,575	)		(9,904	)
Income before income taxes		19,713			7,165			48,824			13,794
Income tax provision		(5,759	)		(1,848	)		(13,942	)		(2,364	)
Net income	$	13,954		$	5,317		$	34,882		$	11,430

Weighted-average shares outstanding:
Basic		30,629			31,301			30,524			31,358
Diluted		30,726			31,492			30,668			31,651

Earnings per common share:
Basic	$	0.46		$	0.17		$	1.14		$	0.36
Diluted		0.45			0.17			1.14			0.36

CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands)
	Six Months Ended
	June 30, 2023			June 30, 2022
Cash flows from operating activities:
Net income	$	34,882		$	11,430
Adjustments to reconcile net income to net cash provided by (used in) operating activities-
Depreciation		11,506			14,210
Amortization		22,808			25,520
Asset impairment		1,689			24,436
Gain on lease modifications		(3,812	)		-
Loss on short-term investments and other		-			20
Loss on derivative liability upon debt conversion		-			7,456
Unrealized foreign currency transactions (gain)/loss, net		241			(805	)
Deferred income taxes		(4,673	)		(7,816	)
Stock-based compensation		14,056			12,117
Subtotal		76,697			86,568
Changes in operating assets and liabilities, net of acquired amounts:
Trade accounts receivable, net		(7,789	)		(7,833	)
Other current and non-current assets and liabilities		(16,083	)		(16,098	)
Income taxes payable/receivable		(7,235	)		(13,157	)
Trade accounts payable and accrued liabilities		(26,853	)		(65,537	)
Deferred revenue		9,046			2,792
Net cash provided by (used in) operating activities		27,783			(13,265	)

Cash flows from investing activities:
Purchases of software, property and equipment		(16,428	)		(19,647	)
Proceeds from sale/maturity of short-term investments		71			26,755
Net cash provided by (used in) investing activities		(16,357	)		7,108

Cash flows from financing activities:
Proceeds from issuance of common stock		1,664			1,423
Payment of cash dividends		(17,712	)		(17,200	)
Repurchase of common stock		(9,418	)		(45,113	)
Deferred acquisition payments		(1,220	)		-
Proceeds from long-term debt		30,000			245,000
Payments on long-term debt		(18,750	)		(246,051	)
Settlement and merchant reserve activity		(63,107	)		26,754
Net cash used in financing activities		(78,543	)		(35,187	)
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash		708			(3,328	)

Net decrease in cash, cash equivalents, and restricted cash		(66,409	)		(44,672	)

Cash, cash equivalents, and restricted cash, beginning of period		389,018			391,902
Cash, cash equivalents, and restricted cash, end of period	$	322,609		$	347,230

Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest	$	14,672		$	8,323
Income taxes		23,720			23,324

Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	146,212		$	133,770
Settlement and merchant reserve assets		176,397			213,460
Total cash, cash equivalents, and restricted cash	$	322,609		$	347,230

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, 2023					March 31, 2023					June 30, 2022
	Amount		% of Revenue			Amount		% of Revenue			Amount		% of Revenue
Charter	$	60,175		21	%	$	61,532		21	%	$	53,173		20	%
Comcast		53,757		19	%		53,415		18	%		52,919		20	%

Revenue by Vertical
	Quarter Ended			Quarter Ended			Quarter Ended
	June 30,			March 31,			June 30,
	2023			2023			2022
Broadband/Cable/Satellite		54	%		52	%		55	%
Telecommunications		18	%		20	%		19	%
All other		28	%		28	%		26	%
Total revenue		100	%		100	%		100	%

Revenue by Geography
	Quarter Ended			Quarter Ended			Quarter Ended
	June 30,			March 31,			June 30,
	2023			2023			2022
Americas		87	%		84	%		85	%
Europe, Middle East and Africa		9	%		12	%		11	%
Asia Pacific		4	%		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
Amortization of original issue discount (“OID”)	—	—	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.

Contacts

John Rea, Investor Relations
(210) 687-4409
E-mail: john.rea@csgi.com

Read full story here

First published on Thu, Aug 3, 2023

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