DJ CSG Systems International Reports Third Quarter 2022 Results
CSG CSG Systems International Reports Third Quarter 2022 Results 02-Nov-2022 / 21:01 CET/CEST
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CSG (NASDAQ: CSGS) today reported results for the quarter ended September 30, 2022.
Financial Results:
Third quarter 2022 financial results: . Total revenue was USD273.3 million and total non-GAAP adjusted revenue was USD255.1 million. . GAAP operating income was USD20.0 million, or 7.3% of total revenue, and non-GAAP operating income was USD46.7million, or 18.3% of non-GAAP adjusted revenue.
Shareholder Returns: . CSG declared its quarterly cash dividend of USD0.265 per share of common stock, or a total of approximatelyUSD8 million, to shareholders. . During the third quarter of 2022, CSG repurchased 488,000 shares of its common stock under its stockrepurchase program for approximately USD28 million.
"After hitting some headwinds last quarter, Team CSG delivered strong, healthy revenue growth in Q3 with 4.2% sequential quarter-over-quarter growth. Further, on the back of our timely Operating Margin Improvement Initiative, we reported non-GAAP adjusted operating margin of 18.3%, one of our best results in recent memory. And we returned USD91 million to shareholders via buybacks and dividends during the first nine months of the year," said Brian Shepherd, President and Chief Executive Officer of CSG. "Looking forward, our exciting Q3 results give us confidence that we can finish 2022 strong and build even better growth momentum for 2023."
Financial Overview (unaudited)
(in thousands, except per share amounts and percentages):
Quarter Ended September 30, Nine Months Ended September
30,
Percent Percent
2022 2021 Changed 2022 2021 Changed
GAAP Results:
USD USD % USD USD %
Revenue
273,308 263,209 3.8 799,876 771,462 3.7
Operating Income. 19,977 32,763 (39.0 %) 43,675 96,306 (54.6 %)
% % % %
Operating Margin Percentage
7.3 12.4 5.5 12.5
USD USD USD USD
EPS (20.0 %) (55.8 %)
0.40 0.50 0.76 1.72
Non-GAAP Results:
USD USD % USD USD %
Adjusted Revenue
255,131 246,969 3.3 744,948 722,117 3.2
% %
Operating Income 46,747 41,565 123,673 121,561
12.5 1.7
% % % %
Adjusted Operating Margin Percentage
18.3 16.8 16.6 16.8
USD USD % USD USD %
EPS
1.06 0.88 20.5 2.76 2.52 9.5
For additional information and reconciliations regarding CSG's use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG's website at csgi.com.
Results of Operations
GAAP Results: Total revenue for the third quarter of 2022 was USD273.3 million, a 3.8% increase when compared to revenue of USD263.2 million for the third quarter of 2021. This increase can be mainly attributed to the continued growth of CSG's revenue management solutions, as approximately three-fourths of the increase was attributed to organic growth resulting mainly from increased payments volume and conversions of customer accounts onto CSG solutions.
GAAP operating income for the third quarter of 2022 was USD20.0 million, or 7.3% of total revenue, compared to USD32.8 million, or 12.4% of total revenue, for the third quarter of 2021. The decrease in operating income can be primarily attributed to the USD14.0 million increase in restructuring and reorganization charges related mainly to an operating margin improvement initiative that began in the second quarter of 2022.
GAAP EPS for the third quarter of 2022 was USD0.40, as compared to USD0.50 for the third quarter of 2021. The decrease in GAAP EPS can be mainly attributed to the increase in restructuring and reorganization charges, discussed above, offset by a USD6.2 million loss recorded in the third quarter of 2021 related to CSG obtaining a controlling interest in MobileCard.
Non-GAAP Results: Non-GAAP adjusted revenue for the third quarter of 2022 was USD255.1 million, a 3.3% increase when compared to non-GAAP adjusted revenue of USD247.0 million for the third quarter of 2021. The increase in non-GAAP adjusted revenue between periods is due to the factors discussed above.
Non-GAAP operating income for the third quarter of 2022 was USD46.7 million, or 18.3% of total non-GAAP adjusted revenue, compared to USD41.6 million, or 16.8% of total non-GAAP adjusted revenue for the third quarter of 2021. The increases in operating income and operating income margin can be mainly attributed to the higher revenue along with the margin improvement initiatives, mentioned above.
Non-GAAP EPS for the third quarter of 2022 was USD1.06 compared to USD0.88 for the third quarter of 2021, with the increase due to the factors discussed above.
Balance Sheet and Cash Flows
Cash, cash equivalents and short-term investments as of September 30, 2022 were USD147.3 million compared to USD135.0 million as of June 30, 2022 and USD233.7 million as of December 31, 2021. CSG had net cash flows from operations for the third quarters ended September 30, 2022 and 2021 of USD22.8 million and USD46.1 million, respectively, and had non-GAAP free cash flow of USD10.9 million and USD38.7 million, respectively. These year-over-year decreases in quarterly cash flows from operations and non-GAAP free cash flow are mainly attributed to unfavorable changes in working capital, resulting mainly from the timing of payment of employee wages and the accrual of the annual bonus, and deferred revenue related to a large international implementation project.
Summary of Financial Guidance
CSG is updating its financial guidance for the full year 2022, as follows:
As of November 2, 2022 Previous
GAAP Measures:
USD
Revenue No change
1,070 - USD1,110 million
Non-GAAP Measures:
USD
Adjusted Revenue No change
1,000 - USD1,033 million
Adjusted Operating Margin Percentage No change 16.2% - 16.7%
USD
EPS No change
3.44 - USD3.68
USD
Adjusted EBITDA No change
220 - USD230 million
USD USD
Free Cash Flow
25 - USD40 million 80 - USD90 million
For additional information and reconciliations regarding CSG's use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG's website at csgi.com.
Conference Call
CSG will host a conference call on Wednesday, November 2, 2022 at 5:00 p.m. ET to discuss CSG's third quarter 2022 earnings results. The call will be conducted 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 more than 5k-strong experienced global CSG services team.
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: 1. CSG derives approximately forty percent of its revenue from its two largest customers; 2. Fluctuations in credit market conditions, general global economic and political conditions, and foreigncurrency exchange rates; 3. CSG's ability to maintain a reliable, secure computing environment; 4. Continued market acceptance of CSG's products and services; 5. CSG's ability to continuously develop and enhance products in a timely, cost-effective, technicallyadvanced and competitive manner; 6. CSG's ability to deliver its solutions in a timely fashion within budget, particularly large and complexsoftware implementations; 7. CSG's dependency on the global telecommunications industry, and in particular, the North Americantelecommunications industry; 8. CSG's ability to meet its financial expectations; 9. Increasing competition in CSG's market from companies of greater size and with broader presence; 10. CSG's ability to successfully integrate and manage acquired businesses or assets to achieve expectedstrategic, operating and financial goals; 11. CSG's ability to protect its intellectual property rights; 12. CSG's ability to conduct business in the international marketplace; 13. CSG's ability to comply with applicable U.S. and International laws and regulations; and 14. CSG's business may be disrupted, and its results of operations and cash flows adversely affected by theCOVID-19 pandemic.
This list is not exhaustive, and readers are encouraged to review the additional risks and important factors described in CSG's reports on Forms 10-K and 10-Q and other filings made with the SEC.
For more information, contact:
John Rea, Investor Relations
(210) 687-4409
E-mail: john.rea@csgi.com
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED
(in thousands)
September December
30, 31,
2022 2021
ASSETS
Current assets:
USD USD
Cash and cash equivalents.
146,685 205,635
Short-term investments 575 28,037
Total cash, cash equivalents and short-term investments 147,260 233,672
Settlement and merchant reserve assets 172,609 186,267
Trade accounts receivable:
Billed, net of allowance of USD4,998 and USD4,250 238,831 244,317
Unbilled 51,139 35,802
Income taxes receivable 23,075 6,414
Other current assets 58,811 41,727
Total current assets 691,725 748,199
Non-current assets:
Property and equipment, net of depreciation of USD111,994 and USD111,244 71,856 73,580
Operating lease right-of-use assets. 53,033 86,034
Software, net of amortization of USD159,357 and USD152,283 24,585 29,757
Goodwill 295,196 321,330
Acquired customer contracts, net of amortization of USD113,348 and 114,166 47,674 57,207
Customer contract costs, net of amortization of USD32,574 and USD32,410 52,194 46,618
Deferred income taxes 13,791 8,584
Other assets 9,091 15,840
Total non-current assets 567,420 638,950
USD USD
Total assets.
1,259,145 1,387,149
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
USD USD
Current portion of long-term debt
52,500 237,500
Operating lease liabilities 21,726 23,270
Customer deposits 36,442 43,546
Trade accounts payable 32,686 35,397
Accrued employee compensation 51,517 91,115
Settlement and merchant reserve liabilities 171,192 185,276
Deferred revenue 47,067 53,748
Income taxes payable 10,613 398
Other current liabilities 21,637 24,852
Total current liabilities 445,380 695,102
Non-current liabilities:
Long-term debt, net of unamortized discounts of USD2,843 and USD3,40 377,157 137,219
Operating lease liabilities 58,279 70,068
Deferred revenue 18,738 19,599
Income taxes payable 3,470 4,058
Deferred income taxes 110 7,752
Other non-current liabilities. 11,706 13,107
Total non-current liabilities 469,460 251,803
Total liabilities 914,840 946,905
Stockholders' equity:
Preferred stock, par value USD.01 per share; 10,000 shares authorized; zero shares issued - -
and outstanding
Common stock, par value USD.01 per share; 100,000 shares authorized; 31,664 and 32,495 708 705
shares outstanding
Additional paid-in capital 488,292 488,303
Treasury stock, at cost; 37,827 and 36,713 shares (995,606 ) (930,106 )
Accumulated other comprehensive income (loss):
Unrealized loss on short-term investments, net of tax - (6 )
Cumulative foreign currency translation adjustments (73,448 ) (38,347 )
Accumulated earnings 924,359 916,060
Total CSG stockholders' equity. 344,305 436,609
Noncontrolling interest - 3,635
Total stockholders' equity. 344,305 440,244
USD USD
Total liabilities and stockholders' equity
1,259,145 1,387,149
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2022 2021 2022 2021
USD USD USD USD
Revenue
273,308 263,209 799,876 771,462
Cost of revenue (exclusive of depreciation, shown 138,462 134,705 415,014 401,185
separately below)
Other operating expenses:
Research and development 54 34,384 103,365 99,350
Research and development. 9,026 54,923 173,833 152,988
Depreciation 5,896 6,225 17,685 18,604
Restructuring and reorganization charges 14,193 209 46,304 3,029
Total operating expenses 253,331 230,446 756,201 675,156
Operating income. 9,977 32,763 43,675 96,306
Other income (expense):
Interest expense 4,328 ) (3,636 ) (10,286 ) (10,861 )
Amortization of original issue discount - (794 ) - (2,350 )
Interest and investment income, net 281 78 537 286
Loss on derivative liability upon debt conversion. - - (7,456 ) -
Other, net. 2,790 (5,875 ) 6,044 (6,530 )
Total other (1,257 ) (10,227 ) (11,161 ) (19,455 )
Income before income taxes 18,720 22,536 32,514 76,851
Income tax provision (6,239 ) (6,406 ) (8,603 ) (21,769 )
USD USD USD USD
Net income
81 16,130 23,911 55,082
Weighted-average shares outstanding:
Basic 30,941 31,756 31,219 31,825
Dilute 31,159 31,960 31,487 32,033
Earnings per common share:
USD USD USD USD
Basic
0.40 0.51 0.77 1.73
Diluted 0.40 0.50 0.76 1.72
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Nine Months Ended
September 30, September 30,
2022 2021
Cash flows from operating activities:
USD USD
Net income.
23,911 55,082
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation 21,817 18,604
Amortizatio 36,470 34,314
Amortization of original issue discount
impairment 30,126 415
Loss on short-term investments and other 19 51
Loss on derivative liability upon debt conversion 7,456 -
Loss on extinguishment of debt - 132
Loss on acquisition of controlling interest - 6,180
Unrealized foreign currency transactions gains, net (1,700 ) (339 )
Deferred income taxes (16,457 ) 2,188
Stock-based compensation 20,778 15,304
Subtotal 122,420 134,281
Changes in operating assets and liabilities, net of acquired amounts:
Trade accounts receivable, net (22,026 ) (11,621 )
Other current and non-current assets and liabilities (16,430 ) (13,912 )
Income taxes payable/receivable (7,188 ) (6,111 )
Trade accounts payable and accrued liabilities (67,053 ) (18,329 )
Deferred revenue (150 ) 4,001
Net cash provided by operating activities 9,573 88,309
Cash flows from investing activities:
Purchases of software, property and equipment (31,564 ) (22,531 )
Purchases of short-term investments - (57,734 )
Proceeds from sale/maturity of short-term investments 27,447 80,092
Acquisition of and investments in business, net of cash acquired - (51,111 )
Net cash used in investing activities (4,117 ) (51,284 )
Cash flows from financing activities:
Proceeds from issuance of common stock 2,217 1,926
Payment of cash dividends (25,396 ) (24,653 )
Repurchase of common stock (73,380 ) (25,568 )
Deferred acquisition payments (1,959 ) -
Proceeds from long-term debt 290,000 150,000
Payments on long-term debt. (247,926 ) (126,563 )
Payments of deferred financing costs - (3,000 )
Settlement and merchant reserve activity (13,931 ) (7,735 )
Net cash used in financing activities (70,375 ) (35,593 )
Effect of exchange rate fluctuations on cash, cash equivalents and restricted (7,689 ) (1,872 )
cash
Net decrease in cash, cash equivalents and restricted cash (72,608 ) (440 )
Cash, cash equivalents and restricted cash, beginning of period 391,902 354,730
USD USD
Cash, cash equivalents and restricted cash, end of period
319,294 354,290
Supplemental disclosures of cash flow information:
Cash paid during the period for-
USD USD
Interest
12,367 11,947
Income taxes 31,817 25,688
Reconciliation of cash, cash equivalents and restricted cash:
USD USD
Cash and cash equivalents
146,685 195,365
Settlement and merchant reserve assets 172,609 158,925
USD USD
Total cash, cash equivalents and restricted cash
319,294 354,290
EXHIBIT 1
CSG SYSTEMS INTERNATIONAL, INC.
SUPPLEMENTAL REVENUE ANALYSIS
Revenue by Significant Customers: 10% or more of Revenue
Quarter Ended Quarter Ended Quarter Ended
September 30, 2022 June 30, 2022 September 30, 2021
Amount % of Revenue Amount % of Revenue Amount % of Revenue
USD % USD % USD %
Charter
57,974 21 53,173 20 55,332 21
% % %
Comcast 53,533 52,919 53,840
20 20 20
Revenue by Vertical
Quarter Quarter Quarter
Ended Ended Ended
September June 30, September
30, 30,
2022 2022 2021
% % %
Broadband/Cable/Satellite
55 55 56
% % %
Telecommunications
20 19 20
% % %
All other
25 26 24
% % %
Total revenue
100 100 100
Revenue by Geography
Quarter Quarter Quarter
Ended Ended Ended
September June 30, September
30, 30,
2022 2022 2021
% % %
Americas
86 85 85
% % %
Europe, Middle East and Africa
10 11 12
% % %
Asia Pacific
4 4 3
% % %
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 adjusted revenue, 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 Adjusted Operating Adjusted Operating Margin EPS
Revenue Income Percentage
Transaction fees X - 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
Earn-out compensation - X X X
Transaction-related costs - X X X
Stock-based compensation - X X X
Amortization of original issue discount - - - X
("OID")
Gain (loss) on debt extinguishment/ - - - X
conversion
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: 1. Transaction fees are primarily comprised of interchange and other payment-related fees paid, inconjunction with the delivery of service to customers under CSG's payment services contracts, to third-partypayment processors and financial institutions by CSG. Because CSG controls the integrated service provided underits payment services customer contracts, these transaction fees are presented gross, and not netted againstrevenue; however, other payments companies who do not provide and/or control an integrated service present theirrevenue net of transaction fees. The exclusion of these fees in calculating CSG's non-GAAP adjusted revenueprovides management and investors an additional means to use to compare CSG's current revenue with historical andfuture periods, as well as with other payments companies. 2. Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/orsignificant changes to CSG's business, to include such things as involuntary employee terminations, changes inmanagement structure, divestitures of businesses, facility consolidations and abandonments, and fundamentalreorganizations impacting operational focus and direction. These charges are not considered reflective of CSG'srecurring business operating results. The exclusion of these items in calculating CSG's non-GAAP financial measuresallows management and investors an additional means to compare CSG's current financial results with historical andfuture periods. 3. Executive transition costs include expenses incurred related to a departure of a CSG executive officerunder the terms of the related separation agreement. These types of costs are not considered reflective of CSG'srecurring business operating results. The exclusion of these costs in calculating CSG's non-GAAP financial measuresallows management and investors an additional means to compare CSG's current financial results with historical andfuture periods.
. Acquisition-related expenses include amortization of acquired intangible assets, earn-out compensation, and transaction-related costs. 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.
. The convertible notes OID is the result of allocating a portion of the principal balance of the debt at issuance to the equity component of the instrument, as required under current accounting rules. This OID is then amortized to interest expense over the life of the respective convertible debt instrument. The interest expense related to the amortization of the OID is a non-cash expense, and therefore, the exclusion of this item allows investors to further evaluate the cash interest costs of CSG's convertible notes for cash flow, liquidity, and debt service purposes. 1. Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancingof CSG's credit agreement and/or repurchase, conversion, or settlement of CSG's convertible notes. Theseactivities, to include any derivative activity related to debt conversions, are not considered reflective of CSG'srecurring business operating results. Any resulting gain or loss is generally non-cash income or expense, andtherefore, the exclusion of these items allows investors to further evaluate the cash impact of these activitiesfor cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG'snon-GAAP EPS allows management and investors an additional means to compare CSG's current operating results withhistorical and future periods. 2. Gains or losses related to the acquisition or disposition of certain of CSG's business activities are notconsidered reflective of CSG's recurring business operating results. Any resulting gain or loss is generallynon-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate thecash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains andlosses in calculating CSG's non-GAAP EPS allows management and investors an additional means to compare CSG'scurrent operating results with historical and future periods. 3. Unusual items within CSG's quarterly and/or annual income tax expense can occur from such things asincome tax accounting timing matters, income taxes related to unusual events, or as a result of different treatmentof certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG'snon-GAAP financial measures allows management and investors an additional means to compare CSG's current financialresults 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 Adjusted Revenue:
The reconciliations of GAAP revenue to non-GAAP adjusted revenue for the indicated periods are as follows (in thousands):
Quarter Ended
Nine Months Ended September 30,
September 30,
2022 2021 2022 2021
USD USD USD USD
GAAP revenue
273,308 263,209 799,876 771,462
Less: Transaction fees (18,177 ) (16,240 ) (54,928 ) (49,345 )
USD USD USD USD
Non-GAAP adjusted revenue
255,131 246,969 744,948 722,117
Non-GAAP Operating Income:
The reconciliations of GAAP operating income to non-GAAP operating income for the indicated periods are as follows (in thousands, except percentages):
Quarter Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
USD USD USD USD
GAAP operating income
19,977 32,763 43,675 96,306
Restructuring and reorganization charges (1) 14,193 209 46,304 3,029
Executive transition costs 27 - 1,302 60
Acquisition-related expenses:
Amortization of acquired intangible assets 3,405 3,213 11,017 8,072
Earn-out compensation - - - (2,521 )
Transaction-related costs 495 435 469 1,137
Stock-based compensation (1). 8,650 4,945 20,906 15,478
USD USD USD USD
Non-GAAP operating income
46,747 41,565 123,673 121,561
USD USD USD USD
Non-GAAP adjusted revenue
255,131 246,969 744,948 722,117
% % % %
Non-GAAP adjusted operating margin percentage
18.3 16.8 16.6 16.8
(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 the Income Statement.
Non-GAAP EPS:
The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts):
Quarter Ended Quarter Ended
September 30, 2022 September 30, 2021
Amounts EPS (4) Amounts EPS (4)
USD USD USD USD
GAAP net income
12,481 0.40 16,130 0.50
GAAP income tax provision (3) 6,239 6,406
GAAP income before income taxes. 18,720 22,536
Restructuring and reorganization charges (1) 14,193 209
Executive transition costs 27 -
Acquisition-related costs:
Amortization of acquired intangible assets 3,405 3,213
Transaction-related costs 495 435
Stock-based compensation (1 8,650 4,945
Amortization of OID - 794
Loss on acquisition of controlling interest (2)
taxes 45,490 38,312
Non-GAAP income tax provision (3) (12,510 ) (10,344 )
USD USD USD USD
Non-GAAP net income.
32,980 1.06 27,968 0.88
Nine Months Ended Nine Months Ended
September 30, 2022 September 30, 2021
Amounts EPS (4) Amounts EPS (4)
USD USD USD USD
GAAP net income
23,911 0.76 55,082 1.72
GAAP income tax provision (3) 8,603 21,769
GAAP income before income taxes 32,514 76,851
Restructuring and reorganization charges (1) 46,304 3,029
Executive transition costs 1,302 60
Acquisition-related expenses:
Amortization of acquired intangible assets 11,017 8,072
Earn-out compensation - (2,521 )
Transaction-related costs 469 1,137
Stock-based compensation (1) 20,906 15,478
Loss on extinguishment of debt 7,456 -
Amortization of OID - 2,350
Loss on acquisition of controlling interest (2) - 6,180
Non-GAAP income before income taxes 119,968 110,636
Non-GAAP income tax provision (3) (32,991 ) (29,872 )
USD USD USD USD
Non-GAAP net income
86,977 2.76 80,764 2.52
(2) During the third quarter of 2021, CSG acquired a controlling interest in MobileCard, in which it had previously held only an equity interest in. Upon acquisition of the controlling interest, CSG recognized a non-cash loss in other income (expense) related to the fair value remeasurement of the pre-existing equity investment.
(3) For the third quarter and nine months ended September 30, 2022 the GAAP effective income tax rates were approximately 33% and 26%, respectively, and the non-GAAP effective income tax rates were 27.5% for both periods. For the third quarter and nine months ended September 30, 2021 the GAAP effective income tax rates were approximately 28% for both periods, and the non-GAAP effective income tax rates were 27% for both periods.
(4) The outstanding diluted shares for the third quarter and nine months ended September 30, 2022 were 31.2 million and 31.5 million, respectively, and for the third quarter and nine months ended September 30, 2021 were 32.0 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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
USD USD USD USD
GAAP net income
12,481 16,130 23,911 55,082
GAAP income tax provision 6,239 6,406 8,603 21,769
Interest expense (5) 4,328 3,636 10,286 10,861
Amortization of OID - 794 - 2,350
Loss on derivative liability upon debt conversion - - 7,456 -
Interest and investment income and other, net (6) (3,071 ) 5,797 (6,581 ) 6,244
GAAP operating income 19,977 32,763 43,675 96,306
Restructuring and reorganization charges (1) 14,193 209 46,304 3,029
Executive transition costs 27 - 1,302 60
Acquisition-related expenses:
Amortization of acquired intangible assets (6). 3,405 3,213 11,017 8,072
Earn-out compensation - - - (2,521 )
Transaction-related costs 495 435 469 1,137
Stock-based compensation (1) 8,650 4,945 20,906 15,478
Amortization of other intangible assets (6) 3,530 3,330 10,741 9,933
Amortization of customer contract costs (6) 3,829 5,293 14,150 14,971
Depreciation 5,896 6,225 17,685 18,604
USD USD USD USD
Non-GAAP adjusted EBITDA
60,002 56,413 166,249 165,069
% % % %
Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue
23.5 22.8 22.3 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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
USD USD USD USD
Amortization of acquired intangible assets
3,405 3,213 11,017 8,072
Amortization of other intangible assets 3,530 3,330 10,741 9,933
Amortization of customer contract costs 3,829 5,293 14,150 14,971
Amortization of deferred financing costs 186 460 562 1,338
USD USD USD USD
Total amortization
10,950 12,296 36,470 34,314
Non-GAAP Free Cash Flow:
CSG's calculation of non-GAAP free cash flow and the reconciliation of CSG's non-GAAP free cash flow measure to cash flows from operating activities are provided below for the indicated periods (in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
USD USD USD USD
Cash flows from operating activities
22,838 46,080 9,573 88,309
Purchases of software, property and equipment (11,917 ) (7,373 ) (31,564 ) (22,531 )
USD USD USD USD
Non-GAAP free cash flow )
10,921 38,707 (21,991 65,778
Non-GAAP Financial Measures - 2022 Financial Guidance
Non-GAAP Adjusted Revenue:
The reconciliation of GAAP revenue to non-GAAP adjusted revenue, as included in CSG's 2022 full year financial guidance, is as follows:
2022 Guidance Range
Low Range High Range
USD USD
GAAP revenue
1,070,000 1,110,000
Less: Transaction fees (70,000 ) (77,000 )
USD USD
Non-GAAP adjusted revenue
1,000,000 1,033,000
Non-GAAP Operating Income:
The reconciliation of GAAP operating income to non-GAAP operating income, as included in CSG's 2022 full year financial guidance, is as follows (in thousands, except percentages):
2022 Guidance Range
Low Range High
Range
Operating Income
USD USD
GAAP operating income
70,200 80,600
Restructuring and reorganization charges 47,300 47,300
Executive transition costs 1,300 1,300
Acquisition-related expenses:
Amortization of acquired intangible assets 14,300 14,300
Transaction-related costs 500 500
Stock-based compensation 28,400 28,400
USD USD
Non-GAAP operating income
162,000 172,400
Operating Margin Percentage
USD USD
Non-GAAP adjusted revenue
1,000,000 1,033,000
% %
Non-GAAP adjusted operating margin percentage
16.2 16.7
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG's 2022 full year financial guidance is as follows (in thousands, except per share amounts):
2022 Guidance Range
Low Range High Range
Amounts EPS (8) Amounts EPS (8)
USD USD USD USD
GAAP net income
35,400 1.13 42,400 1.35
GAAP income tax provision (7) 14,200 17,600
GAAP income before income taxes 49,600 60,000
Restructuring and reorganization charges. 47,300 47,300
Executive transition costs 1,300 1,300
Acquisition-related expenses:
Amortization of acquired intangible assets 14,300 14,300
Transaction-related costs 500 500
Stock-based compensation 28,400 28,400
Loss on debt extinguishment/conversion 7,500 7,500
Non-GAAP income before income taxes 148,900 159,300
Non-GAAP income tax provision (7) (40,900 ) (43,800 )
USD USD USD USD
Non-GAAP net income
108,000 3.44 115,500 3.68
(7) For 2022, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 29% and 27.5%, respectively.
(8) The weighted-average diluted shares outstanding are expected to be approximately 31.4 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 2022 full year financial guidance (in thousands, except percentages):
2022 Guidance Range
Low High
Range Range
USD USD
GAAP net income
35,400 42,400
GAAP income tax provision (7) 14,200 17,600
Interest expense 13,900 13,900
Loss on derivative liability upon debt conversion 7,500 7,500
Interest and investment income and other, net (800 ) (800 )
GAAP operating income 70,200 80,600
Restructuring and reorganization charges 47,300 47,300
Executive transition costs 1,300 1,300
Acquisition-related expenses:
Amortization of acquired intangible assets 14,300 14,300
Transaction-related costs 500 500
Stock-based compensation 28,400 28,400
Amortization of other intangible assets 14,100 14,100
Amortization of client contract costs 19,500 19,500
Depreciation 24,000 24,000
USD USD
Non-GAAP adjusted EBITDA
219,600 230,000
% %
Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue
22.0 22.3
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 the indicated period (in thousands):
2022 Guidance Range
Low Range High Range
USD USD
Cash flows from operating activities
60,000 75,000
Purchases of software, property and equipment (35,000 ) (35,000 )
USD USD
Non-GAAP free cash flow
25,000 40,000 Contact Details
CSG
John Rea
+1 210-687-4409
tammy.hovey@csgi.com Company Website
https://www.csgi.com News Source: News Direct
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1477987 02-Nov-2022
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(END) Dow Jones Newswires
November 02, 2022 16:01 ET (20:01 GMT)
