CSG Systems International Reports Fourth Quarter and Full Year 2023 Results

Published

Achieved or Exceeded All 2023 Financial Guidance Targets

2023 Organic Revenue Grew 7.3% YoY; CSG’s Best Annual Results in Nearly Two Decades

Dividend Payout Increased 7% in 2024; Marks 11th Consecutive Year of Increased Payout

Returned Over $150 Million to Shareholders in 2023 including $117 Million of Share Repurchases

Q4 Operating Cash Flow of $80 Million with Record Quarterly Non-GAAP Free Cash Flow of $74 Million

DENVER--(BUSINESS WIRE)-- CSG (NASDAQ: CSGS) today reported results for the quarter and year ended December 31, 2023.

Financial Results:

Fourth quarter 2023 financial results:

  • Total revenue was $297.3 million.
  • GAAP operating income was $24.7 million, or an operating margin of 8.3%, and non-GAAP operating income was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%.
  • GAAP earnings per diluted share (EPS) was $0.44 and non-GAAP EPS was $0.92.
  • Cash flows from operations were $79.5 million, with non-GAAP free cash flow of $74.5 million.

Full year 2023 financial results:

  • Total revenue was $1.17 billion.
  • GAAP operating income was $123.9 million, or an operating margin of 10.6%, and non-GAAP operating income was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%.
  • GAAP EPS was $2.20 and non-GAAP EPS was $3.69.
  • Cash flows from operations were $131.9 million, with non-GAAP free cash flow of $103.9 million.

Shareholder Returns:

  • In November 2023, CSG declared its quarterly cash dividend of $0.28 per share of common stock, or a total of approximately $8 million, to shareholders, bringing total 2023 dividends to approximately $34 million.
  • In January 2024, CSG’s Board of Directors approved a 7% increase in CSG’s cash dividend, with quarterly payments of $0.30 per share of common stock to be paid in March 2024.
  • During the fourth quarter and full year 2023, CSG repurchased under its stock repurchase program, approximately 196,000 shares of its common stock for approximately $10 million and approximately 2,188,000 shares of its common stock for approximately $117 million, respectively.

“Team CSG had a record-setting 2023 as we delivered excellent financial results across the board highlighted by 7.3% year-over-year organic revenue growth, our strongest annual result in nearly two decades,” said Brian Shepherd, President and Chief Executive Officer of CSG. “Additionally, we delivered strong profitability and cash flow generation as our non-GAAP adjusted operating margin improved from 16.6% in 2022 to 17.2% in 2023, while generating $104 million in non-GAAP free cash flow. Plus, we continue to return capital to shareholders in the form of buybacks and dividends, having delivered over $150 million in shareholder remuneration in 2023. On this note, we are pleased to announce our 11th consecutive year of increasing dividend payout in 2024. Looking forward, we anticipate mid-single-digit organic revenue growth, resulting in revenue between $1.2 and $1.24 billion in 2024 with non-GAAP adjusted operating margins in the range of 17.0% to 17.4%.”

Financial Overview (unaudited)

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

 

 

Quarter Ended December 31,

 

Year Ended December 31,

 

 

 

 

 

 

 

 

Percent

 

 

 

 

 

 

 

Percent

 

 

2023

 

2022

 

Changed

 

2023

 

2022

 

Changed

GAAP Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

297,324

 

 

$

289,876

 

 

 

2.6

%

 

$

1,169,258

 

 

$

1,089,752

 

 

 

7.3

%

Operating Income

 

 

24,747

 

 

 

35,072

 

 

 

(29.4

%)

 

 

123,877

 

 

 

78,747

 

 

 

57.3

%

Operating Margin Percentage

 

 

8.3

%

 

 

12.1

%

 

 

 

 

 

10.6

%

 

 

7.2

%

 

 

 

EPS

 

$

0.44

 

 

$

0.66

 

 

 

(33.3

%)

 

$

2.20

 

 

$

1.41

 

 

 

56.0

%

Non-GAAP Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

$

44,063

 

 

$

45,157

 

 

 

(2.4

%)

 

$

185,727

 

 

$

168,830

 

 

 

10.0

%

Adjusted Operating Margin Percentage

 

 

16.1

%

 

 

16.8

%

 

 

 

 

 

17.2

%

 

 

16.6

%

 

 

 

EPS

 

$

0.92

 

 

$

0.84

 

 

 

9.5

%

 

$

3.69

 

 

$

3.61

 

 

 

2.2

%

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 fourth quarter of 2023 was $297.3 million, a 2.6% increase when compared to revenue of $289.9 million for the fourth quarter of 2022. Total revenue for the full year 2023 was $1,169.3 million, a 7.3% increase when compared to revenue of $1,089.8 million for the full year 2022. The increases in revenue can be mainly attributed to the continued growth of CSG’s revenue management solutions, to include the conversion of customer accounts on CSG solutions, growth in digital solutions, and increased payments volumes.

GAAP operating income for the fourth quarter of 2023 was $24.7 million, or 8.3% of total revenue, compared to $35.1 million, or 12.1% of total revenue, for the fourth quarter of 2022. GAAP operating income for the full year 2023 was $123.9 million, or 10.6% of total revenue, compared to $78.7 million, or 7.2% of total revenue, for the full year 2022. These changes in operating income can be mainly attributed to the $7.9 million quarterly increase in restructuring and reorganization charges, and the $30.0 million full year decrease in restructuring and reorganization charges.

GAAP EPS for the fourth quarter of 2023 was $0.44, as compared to $0.66 for the fourth quarter of 2022. GAAP EPS for the full year 2023 was $2.20, compared to $1.41 for the full year 2022. The changes in GAAP EPS are mainly due to fluctuations in operating income, discussed above, with the full year increase in GAAP EPS partially offset by higher interest expense.

Non-GAAP Results: Non-GAAP operating income for the fourth quarter of 2023 was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%, compared to $45.2 million, or a non-GAAP adjusted operating margin of 16.8% for the fourth quarter of 2022. Non-GAAP operating income for the full year 2023 was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%, compared to $168.8 million, or a non-GAAP adjusted operating margin of 16.6% for the full year 2022.

Non-GAAP EPS for the fourth quarter of 2023 was $0.92 compared to $0.84 for the fourth quarter of 2022. Non-GAAP EPS for the full year 2023 was $3.69 compared to $3.61 for the full year 2022.

Balance Sheet and Cash Flows

Cash, cash equivalents, and short-term investments as of December 31, 2023 were $186.3 million compared to $146.7 million as of September 30, 2023 and $150.4 million as of December 31, 2022. CSG generated net cash flows from operations for the fourth quarters ended December 31, 2023 and 2022 of $79.5 million and $54.0 million, respectively, and had non-GAAP free cash flow of $74.5 million and $48.6 million, respectively. For the year ended December 31, 2023 and 2022, CSG generated net cash flows from operations of $131.9 million and $63.6 million, respectively, and had non-GAAP free cash flow of $103.9 million and $26.6 million, respectively.

Summary of Financial Guidance

CSG’s financial guidance for the full year 2024 is as follows:

GAAP Measures:

 

 

Revenue

 

$1,200 - $1,240 million

Non-GAAP Measures:

 

 

Adjusted Operating Margin Percentage

 

17.0% - 17.4%

EPS

 

$3.85 - $4.15

Adjusted EBITDA

 

$245 - $255 million

Free Cash Flow

 

$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, February 7, 2024 at 5:00 p.m. ET, to discuss CSG’s fourth quarter and full year 2023 earnings results. The call will be carried live and archived on the Internet. A link to the conference call is available at http://ir.csgi.com. In addition, to reach the conference by phone, call 1-888-412-4131 and use the passcode 2327393.

Additional Information

For information about CSG, please visit CSG’s web site at csgi.com. Additional information can be found in the Investor Relations section of the website.

About CSG

CSG empowers companies to build unforgettable experiences, making it easier for people and businesses to connect with, use and pay for the services they value most. Our customer experience, billing and payments solutions help companies of any size make money and make a difference. With our SaaS solutions, company leaders can take control of their future and tap into guidance along the way from our fiercely committed and forward-thinking CSGers around the world.

Want to be future-ready and a change-maker like the global brands that trust CSG? Visit csgi.com to learn more.

Forward-Looking Statements

This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. Some of these key factors include, but are not limited to the following items:

  • CSG derives approximately forty percent of its revenue from its two largest customers;
  • Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates;
  • CSG’s ability to maintain a reliable, secure computing environment;
  • Continued market acceptance of CSG’s products and services;
  • CSG’s ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner;
  • CSG’s ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations;
  • CSG’s dependency on the global telecommunications industry, and in particular, the North American telecommunications industry;
  • CSG’s ability to meet its financial expectations;
  • Increasing competition in CSG’s market from companies of greater size and with broader presence;
  • CSG’s ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals;
  • CSG’s ability to protect its intellectual property rights;
  • CSG’s ability to conduct business in the international marketplace;
  • CSG’s ability to comply with applicable U.S. and International laws and regulations; and
  • CSG’s business may be disrupted, and its results of operations and cash flows adversely affected by a global pandemic.

This list is not exhaustive, and readers are encouraged to review the additional risks and important factors described in CSG’s reports on Forms 10-K and 10-Q and other filings made with the SEC.

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands)

 

 

 

December 31,

2023

 

December 31,

2022

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

186,264

 

 

$

150,365

 

Short-term investments

 

 

-

 

 

 

71

 

Total cash, cash equivalents, and short-term investments

 

 

186,264

 

 

 

150,436

 

Settlement and merchant reserve assets

 

 

274,699

 

 

 

238,653

 

Trade accounts receivable:

 

 

 

 

 

 

Billed, net of allowance of $5,432 and $5,528

 

 

267,680

 

 

 

274,189

 

Unbilled

 

 

82,163

 

 

 

52,830

 

Income taxes receivable

 

 

1,345

 

 

 

1,270

 

Other current assets

 

 

50,075

 

 

 

48,577

 

Total current assets

 

 

862,226

 

 

 

765,955

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net of depreciation of $121,816 and $105,466

 

 

65,545

 

 

 

71,787

 

Operating lease right-of-use assets

 

 

34,283

 

 

 

49,687

 

Software, net of amortization of $157,601 and $150,337

 

 

14,224

 

 

 

22,774

 

Goodwill

 

 

308,596

 

 

 

304,036

 

Acquired customer contracts, net of amortization of $126,469 and $120,080

 

 

35,879

 

 

 

45,417

 

Customer contract costs, net of amortization of $42,094 and $30,601

 

 

54,421

 

 

 

54,735

 

Deferred income taxes

 

 

57,855

 

 

 

26,206

 

Other assets

 

 

10,017

 

 

 

7,956

 

Total non-current assets

 

 

580,820

 

 

 

582,598

 

Total assets

 

$

1,443,046

 

 

$

1,348,553

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,500

 

 

$

37,500

 

Operating lease liabilities

 

 

15,946

 

 

 

21,012

 

Customer deposits

 

 

41,035

 

 

 

40,472

 

Trade accounts payable

 

 

46,406

 

 

 

47,720

 

Accrued employee compensation

 

 

84,380

 

 

 

68,321

 

Settlement and merchant reserve liabilities

 

 

273,817

 

 

 

237,810

 

Deferred revenue

 

 

54,199

 

 

 

46,033

 

Income taxes payable

 

 

4,104

 

 

 

5,455

 

Other current liabilities

 

 

33,449

 

 

 

22,886

 

Total current liabilities

 

 

560,836

 

 

 

527,209

 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $15,628 and $2,656

 

 

534,997

 

 

 

375,469

 

Operating lease liabilities

 

 

34,360

 

 

 

53,207

 

Deferred revenue

 

 

23,447

 

 

 

21,991

 

Income taxes payable

 

 

3,041

 

 

 

3,410

 

Deferred income taxes

 

 

123

 

 

 

117

 

Other non-current liabilities

 

 

12,916

 

 

 

11,901

 

Total non-current liabilities

 

 

608,884

 

 

 

466,095

 

Total liabilities

 

 

1,169,720

 

 

 

993,304

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, par value $.01 per share; 100,000 shares authorized; 29,541 and 31,269 shares outstanding

 

 

713

 

 

 

708

 

Additional paid-in capital

 

 

490,947

 

 

 

495,189

 

Treasury stock, at cost; 40,398 and 38,210 shares

 

 

(1,136,055

)

 

 

(1,018,034

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

 

1

 

 

 

1

 

Cumulative foreign currency translation adjustments

 

 

(50,414

)

 

 

(58,830

)

Accumulated earnings

 

 

968,134

 

 

 

936,215

 

Total stockholders' equity

 

 

273,326

 

 

 

355,249

 

Total liabilities and stockholders' equity

 

$

1,443,046

 

 

$

1,348,553

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

 

 

Quarter Ended

 

Year Ended

 

December 31,

2023

 

December 31,

2022

 

December 31,

2023

 

December 31,

2022

Revenue

$

297,324

 

 

$

289,876

 

 

$

1,169,258

 

 

$

1,089,752

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

156,145

 

 

 

150,154

 

 

 

615,042

 

 

 

565,168

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

35,800

 

 

 

34,548

 

 

 

143,201

 

 

 

137,913

 

Selling, general and administrative

 

66,683

 

 

 

64,185

 

 

 

247,613

 

 

 

238,018

 

Depreciation

 

6,034

 

 

 

5,913

 

 

 

23,189

 

 

 

23,598

 

Restructuring and reorganization charges

 

7,915

 

 

 

4

 

 

 

16,336

 

 

 

46,308

 

Total operating expenses

 

272,577

 

 

 

254,804

 

 

 

1,045,381

 

 

 

1,011,005

 

Operating income

 

24,747

 

 

 

35,072

 

 

 

123,877

 

 

 

78,747

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(8,084

)

 

 

(6,146

)

 

 

(31,176

)

 

 

(16,432

)

Interest and investment income, net

 

1,820

 

 

 

340

 

 

 

4,336

 

 

 

877

 

Loss on derivative liability upon debt conversion

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,456

)

Other, net

 

(1,639

)

 

 

(999

)

 

 

(4,686

)

 

 

5,045

 

Total other

 

(7,903

)

 

 

(6,805

)

 

 

(31,526

)

 

 

(17,966

)

Income before income taxes

 

16,844

 

 

 

28,267

 

 

 

92,351

 

 

 

60,781

 

Income tax provision

 

(4,174

)

 

 

(8,118

)

 

 

(26,105

)

 

 

(16,721

)

Net income

$

12,670

 

 

$

20,149

 

 

$

66,246

 

 

$

44,060

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

28,607

 

 

 

30,455

 

 

 

29,938

 

 

 

31,028

 

Diluted

 

28,842

 

 

 

30,732

 

 

 

30,115

 

 

 

31,298

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.44

 

 

$

0.66

 

 

$

2.21

 

 

$

1.42

 

Diluted

 

0.44

 

 

 

0.66

 

 

 

2.20

 

 

 

1.41

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

 

 

Year Ended

 

December 31,

2023

 

December 31,

2022

Cash flows from operating activities:

 

 

 

 

 

Net income

$

66,246

 

 

$

44,060

 

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

 

 

 

 

 

Depreciation

 

23,585

 

 

 

27,967

 

Amortization

 

47,667

 

 

 

48,984

 

Asset impairment

 

2,061

 

 

 

31,761

 

Gain on lease modifications

 

(4,349

)

 

 

-

 

Loss on short-term investments and other

 

-

 

 

 

18

 

Loss on derivative liability upon debt conversion

 

-

 

 

 

7,456

 

Unrealized foreign currency transactions (gain)/loss, net

 

225

 

 

 

(103

)

Deferred income taxes

 

(23,560

)

 

 

(27,627

)

Stock-based compensation

 

28,990

 

 

 

27,243

 

Subtotal

 

140,865

 

 

 

159,759

 

Changes in operating assets and liabilities:

 

 

 

 

 

Trade accounts receivable, net

 

(22,401

)

 

 

(51,005

)

Other current and non-current assets and liabilities

 

(6,566

)

 

 

(12,833

)

Income taxes payable/receivable

 

(1,849

)

 

 

9,336

 

Trade accounts payable and accrued liabilities

 

12,541

 

 

 

(36,971

)

Deferred revenue

 

9,306

 

 

 

(4,689

)

Net cash provided by operating activities

 

131,896

 

 

 

63,597

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of software, property and equipment

 

(27,977

)

 

 

(36,991

)

Proceeds from sale/maturity of short-term investments

 

71

 

 

 

27,953

 

Net cash used in investing activities

 

(27,906

)

 

 

(9,038

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

3,284

 

 

 

2,969

 

Payment of cash dividends

 

(33,930

)

 

 

(33,475

)

Repurchase of common stock

 

(127,065

)

 

 

(96,720

)

Deferred acquisition payments

 

(3,220

)

 

 

(2,314

)

Proceeds from long-term debt

 

470,000

 

 

 

290,000

 

Payments on long-term debt

 

(327,500

)

 

 

(264,801

)

Purchase of capped call transactions related to convertible notes

 

(34,298

)

 

 

-

 

Payments of deferred financing costs

 

(14,539

)

 

 

-

 

Settlement and merchant reserve activity

 

35,963

 

 

 

52,656

 

Net cash used in financing activities

 

(31,305

)

 

 

(51,685

)

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

 

2,173

 

 

 

(5,758

)

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

74,858

 

 

 

(2,884

)

 

 

 

 

 

 

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

 

389,018

 

 

 

391,902

 

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

$

463,876

 

 

$

389,018

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for-

 

 

 

 

 

Interest

$

24,730

 

 

$

18,314

 

Income taxes

 

51,675

 

 

 

34,671

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

Cash and cash equivalents

$

186,264

 

 

$

150,365

 

Settlement and merchant reserve assets

 

274,699

 

 

 

238,653

 

Restricted cash included in current and non-current assets

 

2,913

 

 

 

-

 

Total cash, cash equivalents, and restricted cash

$

463,876

 

$

389,018

EXHIBIT 1

CSG SYSTEMS INTERNATIONAL, INC.

SUPPLEMENTAL REVENUE ANALYSIS

 

Revenue by Significant Customers: 10% or more of Revenue

 

 

 

Quarter Ended

 

Quarter Ended

 

Quarter Ended

 

 

December 31, 2023

 

September 30, 2023

 

December 31, 2022

 

 

Amount

% of

Revenue

 

Amount

% of

Revenue

 

Amount

 

% of

Revenue

Charter

 

$

60,128

20

%

 

$

59,432

21

%

 

$

58,006

 

20

%

Comcast

 

 

54,651

 

18

%

 

 

53,653

 

19

%

 

 

55,383

 

 

19

%

 

 

 

Year Ended

 

Year Ended

 

 

 

 

December 31, 2023

 

December 31, 2022

 

 

 

 

Amount

% of

Revenue

 

Amount

% of

Revenue

 

 

Charter

 

$

241,267

 

21

%

 

$

221,222

 

20

%

 

 

Comcast

 

 

215,476

 

18

%

 

 

214,359

 

20

%

 

 

Revenue by Vertical

 

 

 

Quarter Ended

Quarter Ended

Quarter Ended

 

December 31,

September 30,

December 31,

 

 

2023

2023

2022

Broadband/Cable/Satellite

 

51

%

53

%

53

%

Telecommunications

 

21

%

20

%

20

%

All other

 

28

%

27

%

27

%

Total revenue

 

100

%

100

%

100

%

 

 

Year Ended

Year Ended

 

 

December 31,

December 31,

 

 

2023

2022

 

Broadband/Cable/Satellite

52

%

54

%

 

Telecommunications

20

%

20

%

 

All other

28

%

26

%

 

Total revenue

100

%

100

%

 

Revenue by Geography

 

 

 

Quarter Ended

Quarter Ended

Quarter Ended

 

 

December 31,

September 30,

December 31,

 

 

2023

2023

2022

Americas

 

85

%

86

%

86

%

Europe, Middle East and Africa

 

10

%

9

%

9

%

Asia Pacific

 

5

%

5

%

5

%

Total revenue

 

100

%

100

%

100

%

 

 

Year Ended

Year Ended

 

 

December 31,

December 31,

 

 

2023

2022

 

Americas

86

%

85

%

 

Europe, Middle East and Africa

10

%

11

%

 

Asia Pacific

4

%

4

%

 

Total revenue

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

December 31,

 

Year Ended

December 31,

 

 

2023

 

2022

 

2023

 

2022

Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

 

$

24,747

 

 

$

35,072

 

 

$

123,877

 

 

$

78,747

 

Restructuring and reorganization charges (1)

 

 

7,915

 

 

 

4

 

 

 

16,336

 

 

 

46,308

 

Executive transition costs

 

 

606

 

 

 

-

 

 

 

1,754

 

 

 

1,302

 

Acquisition-related expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

2,982

 

 

 

3,338

 

 

 

12,185

 

 

 

14,355

 

Transaction-related costs

 

 

(27

)

 

 

(296

)

 

 

2,095

 

 

 

173

 

Stock-based compensation (1)

 

 

7,840

 

 

 

7,039

 

 

 

29,480

 

 

 

27,945

 

Non-GAAP operating income

 

$

44,063

 

 

$

45,157

 

 

$

185,727

 

 

$

168,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Adjusted Operating Margin Percentage

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

297,324

 

 

$

289,876

 

 

$

1,169,258

 

 

$

1,089,752

 

Less: Transaction fees (2)

 

 

(23,967

)

 

 

(20,751

)

 

 

(87,430

)

 

 

(75,679

)

Revenue less transaction fees

 

$

273,357

 

 

$

269,125

 

 

$

1,081,828

 

 

$

1,014,073

 

Non-GAAP adjusted operating margin percentage

 

 

16.1

%

 

 

16.8

%

 

 

17.2

%

 

 

16.6

%

(1)

Restructuring and reorganization charges include stock-based compensation, which is not included in the stock-based compensation line in the tables above and following, and depreciation, which has not been recorded to the depreciation line item on CSG’s Income Statement.

 

(2)

Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG's Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors.

Non-GAAP EPS:

The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts):

 

 

Quarter Ended

 

Quarter Ended

 

 

December 31, 2023

 

December 31, 2022

 

 

Amounts

 

EPS (4)

 

Amounts

 

EPS (4)

GAAP net income

 

$

12,670

 

 

$

0.44

 

$

20,149

 

 

$

0.66

GAAP income tax provision (3)

 

 

4,174

 

 

 

 

 

 

8,118

 

 

 

 

GAAP income before income taxes

 

 

16,844

 

 

 

 

 

 

28,267

 

 

 

 

Restructuring and reorganization charges (1)

 

 

7,915

 

 

 

 

 

 

4

 

 

 

 

Executive transition costs

 

 

606

 

 

 

 

 

 

-

 

 

 

 

Acquisition-related costs:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

2,982

 

 

 

 

 

 

3,338

 

 

 

 

Transaction-related costs

 

 

(27

)

 

 

 

 

 

(296

)

 

 

 

Stock-based compensation (1)

 

 

7,840

 

 

 

 

 

 

7,039

 

 

 

 

Non-GAAP income before income taxes

 

 

36,160

 

 

 

 

 

 

38,352

 

 

 

 

Non-GAAP income tax provision (3)

 

 

(9,535

)

 

 

 

 

 

(12,435

)

 

 

 

Non-GAAP net income

 

$

26,625

 

 

$

0.92

 

 

$

25,917

 

 

$

0.84

 

 

 

Year Ended

 

Year Ended

 

 

December 31, 2023

 

December 31, 2022

 

 

Amounts

 

EPS (4)

 

Amounts

 

EPS (4)

GAAP net income

 

$

66,246

 

 

$

2.20

 

$

44,060

 

 

$

1.41

GAAP income tax provision (3)

 

 

26,105

 

 

 

 

 

 

16,721

 

 

 

 

GAAP income before income taxes

 

 

92,351

 

 

 

 

 

 

60,781

 

 

 

 

Restructuring and reorganization charges (1)

 

 

16,336

 

 

 

 

 

 

46,308

 

 

 

 

Executive transition costs

 

 

1,754

 

 

 

 

 

 

1,302

 

 

 

 

Acquisition-related expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

12,185

 

 

 

 

 

 

14,355

 

 

 

 

Transaction-related costs

 

 

2,095

 

 

 

 

 

 

173

 

 

 

 

Stock-based compensation (1)

 

 

29,480

 

 

 

 

 

 

27,945

 

 

 

 

Loss on extinguishment of debt

 

 

-

 

 

 

 

 

 

7,456

 

 

 

 

Non-GAAP income before income taxes

 

 

154,201

 

 

 

 

 

 

158,320

 

 

 

 

Non-GAAP income tax provision (3)

 

 

(43,176

)

 

 

 

 

 

(45,427

)

 

 

 

Non-GAAP net income

 

$

111,025

 

 

$

3.69

 

 

$

112,893

 

 

$

3.61

 

(3)

For the fourth quarter and year ended December 31, 2023 the GAAP effective income tax rates were approximately 25% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 26% and 28%, respectively. For the fourth quarter and year ended December 31, 2022 the GAAP effective income tax rates were approximately 29% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 32% and 29%, respectively.

 

(4)

The outstanding diluted shares for the fourth quarter and year ended December 31, 2023 were 28.8 million and 30.1 million, respectively, and for the fourth quarter and year ended December 31, 2022 were 30.7 million and 31.3 million, respectively.

Non-GAAP Adjusted EBITDA:

CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for the indicated periods (in thousands, except percentages):

 

 

Quarter Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2023

 

2022

 

2023

 

2022

GAAP net income

 

$

12,670

 

 

$

20,149

 

 

$

66,246

 

 

$

44,060

 

GAAP income tax provision

 

 

4,174

 

 

 

8,118

 

 

 

26,105

 

 

 

16,721

 

Interest expense (5)

 

 

8,084

 

 

 

6,146

 

 

 

31,176

 

 

 

16,432

 

Loss on derivative liability upon debt conversion

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,456

 

Interest and investment income and other, net

 

 

(181

)

 

 

659

 

 

 

350

 

 

 

(5,922

)

GAAP operating income

 

 

24,747

 

 

 

35,072

 

 

 

123,877

 

 

 

78,747

 

Restructuring and reorganization charges (1)

 

 

7,915

 

 

 

4

 

 

 

16,336

 

 

 

46,308

 

Executive transition costs

 

 

606

 

 

 

-

 

 

 

1,754

 

 

 

1,302

 

Acquisition-related expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets (6)

 

 

2,982

 

 

 

3,338

 

 

 

12,185

 

 

 

14,355

 

Transaction-related costs

 

 

(27

)

 

 

(296

)

 

 

2,095

 

 

 

173

 

Stock-based compensation (1)

 

 

7,840

 

 

 

7,039

 

 

 

29,480

 

 

 

27,945

 

Amortization of other intangible assets (6)

 

 

3,350

 

 

 

3,399

 

 

 

13,624

 

 

 

14,140

 

Amortization of customer contract costs (6)

 

 

5,901

 

 

 

5,588

 

 

 

20,291

 

 

 

19,738

 

Depreciation (1)

 

 

6,034

 

 

 

5,913

 

 

 

23,189

 

 

 

23,598

 

Non-GAAP adjusted EBITDA

 

$

59,348

 

 

$

60,057

 

 

$

242,831

 

 

$

226,306

 

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

 

 

21.7

%

 

 

22.3

%

 

 

22.4

%

 

 

22.3

%

(5)

Interest expense includes amortization of deferred financing costs as provided in Note 6 below.

 

(6)

Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands):

 

 

Quarter Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2023

 

2022

 

2023

 

2022

Amortization of acquired intangible assets

 

$

2,982

 

$

3,338

 

$

12,185

 

$

14,355

Amortization of other intangible assets

 

 

3,350

 

 

 

3,399

 

 

 

13,624

 

 

 

14,140

 

Amortization of customer contract costs

 

 

5,901

 

 

 

5,588

 

 

 

20,291

 

 

 

19,738

 

Amortization of deferred financing costs

 

 

891

 

 

 

189

 

 

 

1,567

 

 

 

751

 

Total amortization

 

$

13,124

 

 

$

12,514

 

 

$

47,667

 

 

$

48,984

 

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

 

Year Ended

 

 

December 31,

 

December 31,

 

 

2023

 

2022

 

2023

 

2022

Cash flows from operating activities

 

$

79,531

 

 

$

54,024

 

 

$

131,896

 

 

$

63,597

 

Purchases of software, property and equipment

 

 

(5,037

)

 

 

(5,427

)

 

 

(27,977

)

 

 

(36,991

)

Non-GAAP free cash flow

 

$

74,494

 

 

$

48,597

 

 

$

103,919

 

 

$

26,606

 

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

 

$

145,100

 

 

$

155,100

 

Executive transition costs

 

 

500

 

 

 

500

 

Acquisition-related expenses:

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

11,100

 

 

 

11,100

 

Stock-based compensation

 

 

31,000

 

 

 

31,000

 

Non-GAAP operating income

 

$

187,700

 

 

$

197,700

 

 

 

 

 

 

 

 

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

 

 

17.0

%

 

 

17.4

%

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

 

$

84,000

 

 

$

2.86

 

$

91,200

 

 

$

3.13

GAAP income tax provision (7)

 

 

35,100

 

 

 

 

 

 

37,900

 

 

 

 

GAAP income before income taxes

 

 

119,100

 

 

 

 

 

 

129,100

 

 

 

 

Executive transition costs

 

 

500

 

 

 

 

 

 

500

 

 

 

 

Acquisition-related expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

11,100

 

 

 

 

 

 

11,100

 

 

 

 

Stock-based compensation

 

 

31,000

 

 

 

 

 

 

31,000

 

 

 

 

Non-GAAP income before income taxes

 

 

161,700

 

 

 

 

 

 

171,700

 

 

 

 

Non-GAAP income tax provision (7)

 

 

(47,700

)

 

 

 

 

 

(50,500

)

 

 

 

Non-GAAP net income

 

$

114,000

 

 

$

3.85

 

 

$

121,200

 

 

$

4.15

 

(7)

For 2024, the estimated effective income tax rate for GAAP and non-GAAP purposes is 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

 

$

84,000

 

 

$

91,200

 

GAAP income tax provision (7)

 

 

35,100

 

 

 

37,900

 

Interest expense

 

 

30,000

 

 

 

30,000

 

Interest and investment income

 

 

(4,000

)

 

 

(4,000

)

GAAP operating income

 

 

145,100

 

 

 

155,100

 

Executive transition costs

 

 

500

 

 

 

500

 

Acquisition-related expenses:

 

 

 

 

 

 

Amortization of acquired intangible assets

 

 

11,100

 

 

 

11,100

 

Stock-based compensation

 

 

31,000

 

 

 

31,000

 

Amortization of other intangible assets

 

 

5,200

 

 

 

5,200

 

Amortization of client contract costs

 

 

22,100

 

 

 

22,100

 

Depreciation

 

 

30,000

 

 

 

30,000

 

Non-GAAP adjusted EBITDA

 

$

245,000

 

 

$

255,000

 

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

 

 

22.2

%

 

 

22.4

%

Non-GAAP Free Cash Flow:

CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities is provided below for CSG’s 2023 full year financial guidance (in thousands):

 

 

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

 

 

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

Source: CSG Systems International, Inc.

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