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.
“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.
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.
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.
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.
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.
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
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
%
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.
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 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.
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.
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
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.
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240807218127/en/
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
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