CSGS - CSG Systems International Reports First Quarter 2022 Results

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Confirming All 2022 FinancialGuidance Targets

Delivered4.5% YoY Revenue Growth and 4.9% YoY Non-GAAP EPS Growth in Q1

Launched 5G-Ready,SaaS-Based CSG Encompass for Global Telecom Customers

CSG (NASDAQ: CSGS) today reportedresults for the quarter ended March 31, 2022.

FinancialResults:

First quarter 2022financial results:

• Total revenue was $264.4 million and total non-GAAPadjusted revenue was $246.4 million.

• GAAP operatingincome was $16.4 million , or 6.2% of total revenue, andnon-GAAP operating income was $40.2 million , or 16.3% of non-GAAP adjusted revenue.

• GAAPearnings per diluted share (EPS) was $0.19 and non-GAAP EPS was $0.86 .

• Cash flows used in operations were ($5.5) million , with a non-GAAP free cash flow deficit of( $15.9) million .

Shareholder Returns:

• CSG declared its quarterly cash dividendof $0.265 per share of common stock, or a total ofapproximately $9 million , to shareholders.
• During thefirst quarter of 2022, CSG repurchased under its stock repurchaseprogram, approximately 266,000 shares of its common stock forapproximately $16 million .

“CSG continued to build off our excellent2021 momentum by delivering 4.5% year-over-year revenue growth and4.9% year-over-year non-GAAP EPS growth in Q1, despite the discountsrelated to our Charter Communications and DISH contract renewals,”said Brian Shepherd, President and Chief Executive Officer of CSG.“These good first quarter results prove that our strategy is payingdividends as we continue to deliver for our customers. As a result,we are pleased to confirm all 2022 financial guidance targets. Looking ahead, we remain well positioned to lengthen and strengthenour relationships with existing customers, organically grow ourrevenue, close good value-adding strategic acquisitions, and diversifyinto faster growth industry verticals.”

Financial Overview(unaudited)

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

For additionalinformation and reconciliations regarding CSG’s use of non-GAAPfinancial measures, please refer to the attached Exhibit 2 and theInvestor Relations section of CSG’s website at csgi.com .

Results of Operations

GAAP Results: Total revenue for the first quarter of 2022 was $264.4 million, a 4.5%increase when compared to revenue of $253.1 million for the firstquarter of 2021. The increase in revenue can be primarily attributedto the continued growth of CSG’s revenue management solutions, asapproximately two-thirds of the increase was attributed to organicgrowth.

GAAPoperating income for the first quarter of 2022 was $16.4 million, or6.2% of total revenue, compared to $31.4 million, or 12.4% of totalrevenue, for the first quarter of 2021. The decrease in operatingincome is mainly a result of a $12 million increase in restructuringand reorganization charges related primarily to real estaterestructurings in the first quarter of 2022 as CSG rationalizes itsreal estate footprint to reflect a flexible work approach.

GAAP EPS for the firstquarter of 2022 was $0.19, as compared to $0.61 for the first quarterof 2021. The decrease in GAAP EPS can be mainly attributed to theincrease restructuring and reorganization charges, discussed above,and a $7.5 million loss incurred on a derivative liability uponconversion of our 2016 Convertible Notes, discussed below.

Non-GAAPResults: Non-GAAP adjusted revenue for the first quarter of2022 was $246.4 million, a 4.1% increase when compared to non-GAAPadjusted revenue of $236.7 million for the first quarter of 2021. Theincrease in non-GAAP adjusted revenue between periods is due to thefactors discussed above.

Non-GAAP operating income for the first quarter of 2022 was$40.2 million, or 16.3% of total non-GAAP adjusted revenue, comparedto $40.2 million, or 17.0% of total non-GAAP adjusted revenue for thefirst quarter of 2021.

Non-GAAP EPS for the first quarter of 2022 was $0.86 comparedto $0.82 for the first quarter of 2021.

Balance Sheet and CashFlows

Cash, cash equivalents and short-term investments as of March31, 2022 were $187.6 million compared to $233.7 million as of December31, 2021. CSG had net cash flows used in operations for the firstquarters ended March 31, 2022 and 2021 of ($5.5) million and ($2.2)million, respectively, and had non-GAAP free cash flow deficits of($15.9) million and ($10.5) million, respectively. Cash flows for thefirst quarters of 2022 and 2021 were negatively impacted by thepayment of year-end accrued employee incentive compensation.

During the first quarterof 2022, CSG borrowed $245 million on its 2021 Revolving CreditFacility to settle the 2016 Convertible Notes for approximately $242million in cash. As a result of the conversions of the Notes in March2022, CSG recognized a $7.5 million loss on a derivative liabilityrelated to the change in CSG’s stock price over the observationperiod prior to settlement.

Summary of Financial Guidance

CSG is reaffirming its financial guidancefor the full year 2022, as follows:

For additional information and reconciliations regardingCSG’s use of non-GAAP financial measures, please refer to theattached Exhibit 2 and the Investor Relations section of CSG’swebsite at csgi.com .

ConferenceCall

CSGwill host a conference call on Wednesday, May 4, 2022 at 5:00 p.m. ET,to discuss CSG’s first quarter results for 2022. The call will becarried live and archived on the Internet. A link to the conferencecall is available at http://ir.csgi.com . In addition, toreach the conference by phone, call 1-888-412-4131 and use thepasscode 2327393.

Additional Information

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

AboutCSG

CSG isa leader in innovative customer engagement, revenue management andpayments solutions that make ordinary customer experiencesextraordinary. Our cloud-first architecture and customer-obsessedmindset help companies around the world launch new digital services,expand into new markets, and create dynamic experiences that capturenew customers and build brand loyalty. For 40 years, CSG’stechnologies and people have helped some of the world’s mostrecognizable brands solve their toughest business challenges andevolve to meet the demands of today’s digital economy withfuture-ready solutions that drive exceptional customer experiences.With over 5,000 employees in over 20 countries, CSG is the trustedtechnology provider for leading global brands in telecommunications,retail, financial services, and healthcare. Our solutions deliver realworld outcomes to more than 900 customers in over 120 countries.

To learn more,visit us at csgi.com and connectwith us on and .

Forward-LookingStatements

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

• CSG derives approximately forty percentof its revenue from its two largest customers;
• Fluctuationsin credit market conditions, general global economic and politicalconditions, and foreign currency exchange rates;
• CSG’sability to maintain a reliable, secure computing environment;
• Continued market acceptance of CSG’s products and services;
• CSG’s ability to continuously develop and enhance productsin a timely, cost-effective, technically advanced and competitivemanner;
• CSG’s ability to deliver its solutions in a timelyfashion within budget, particularly large and complex softwareimplementations;
• CSG’s dependency on the globaltelecommunications industry, and in particular, the North Americantelecommunications industry;
• CSG’s ability to meet itsfinancial expectations;
• Increasing competition in CSG’smarket from companies of greater size and with broader presence;
• CSG’s ability to successfully integrate and manage acquiredbusinesses or assets to achieve expected strategic, operating andfinancial goals;
• CSG’s ability to protect its intellectualproperty rights;
• CSG’s ability to conduct business in theinternational marketplace;
• CSG’s ability to comply withapplicable U.S. and International laws and regulations; and
• CSG’s business may be disrupted, and its results ofoperations and cash flows adversely affected by the COVID-19pandemic.

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

For moreinformation, contact:

John Rea, Investor Relations

(210) 687-4409

E-mail: john.rea@csgi.com

CSG SYSTEMSINTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands)

CSG SYSTEMSINTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(inthousands, except per share amounts)

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

(1) Beginning with the second quarter of2021, CSG reclassified certain cash flows related to settlement andmerchant reserve assets and liabilities from cash flows from operatingactivities to cash flows from financing activities within theCondensed Consolidated Statements of Cash Flows. Prior period amountshave been reclassified to conform to the current period presentation.

EXHIBIT1

CSGSYSTEMS INTERNATIONAL, INC.

SUPPLEMENTAL REVENUE ANALYSIS

Revenue bySignificant Customers: 10% or more of Revenue

Revenue byVertical

Revenue byGeography

EXHIBIT2

CSGSYSTEMS INTERNATIONAL, INC.

DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES

Use ofNon-GAAP Financial Measures and Limitations

To supplement itscondensed consolidated financial statements presented in accordancewith generally accepted accounting principles (GAAP), CSG usesnon-GAAP adjusted revenue, non-GAAP operating income, non-GAAPadjusted operating margin percentage, non-GAAP EPS, non-GAAP adjustedEBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAPfinancial measures, when reviewed in conjunction with its GAAPfinancial measures, provide investors with greater transparency to theinformation used by CSG’s management in its financial andoperational decision making. CSG uses these non-GAAP financialmeasures for the following purposes:

• Certain internalfinancial planning, reporting, and analysis;
• Forecasting andbudgeting;
• Certain management compensation incentives; and
• Communications with CSG’s Board of Directors, stockholders,financial analysts, and investors.

These non-GAAP financial measures are providedwith the intent of providing investors with the following information:

• A more complete understanding of CSG’s underlyingoperational results, trends, and cash generating capabilities;
• Consistency and comparability with CSG’s historicalfinancial results; and
• Comparability to similar companies,many of which present similar non-GAAP financial measures toinvestors.

Non-GAAP financial measures are not measures of performanceunder GAAP, and therefore should not be considered in isolation or asa substitute for GAAP financial information. Limitations with the useof non-GAAP financial measures include the following items:

• Non-GAAP financial measures are not based on anycomprehensive set of accounting rules or principles;
• The wayin which CSG calculates non-GAAP financial measures may differ fromthe way in which other companies calculate similar non-GAAP financialmeasures;
• Non-GAAP financial measures do not include allitems of income and expense that affect CSG’s operations and thatare required by GAAP to be included in financial statements;
• Certain adjustments to CSG’s non-GAAP financial measuresresult in the exclusion of items that are recurring and will bereflected in CSG’s financial statements in future periods; and
• Certain charges excluded from CSG’s non-GAAP financialmeasures are cash expenses, and therefore do impact CSG’s cashposition.

CSG compensates for these limitations by relying primarily onits GAAP results and using non-GAAP financial measures as a supplementonly. Additionally, CSG provides specific information regarding thetreatment of GAAP amounts considered in preparing the non-GAAPfinancial measures and reconciles each n on-GAAP financial measure tothe most directly comparable GAAP measure.

Non-GAAP FinancialMeasures: Basis of Presentation

The table below outlines the exclusions from CSG’s non-GAAPfinancial measures:

CSG believes thatexcluding certain items in calculating its non-GAAP financial measuresprovides meaningful supplemental information regarding CSG’sperformance and these items are excluded for the following reasons:

• Transaction fees are primarilycomprised of interchange and other payment-related fees paid, inconjunction with the delivery of service to customers under CSG’spayment services contracts, to third-party payment processors andfinancial institutions by CSG. Because CSG controls the integratedservice provided under its payment services customer contracts, thesetransaction fees are presented gross, and not netted against revenue;however, other payments companies who do not provide and/or control anintegrated service present their revenue net of transaction fees. Theexclusion of these fees in calculating CSG’s non-GAAP adjustedrevenue provides management and investors an additional means to useto compare CSG’s current revenue with historical and future periods,as well as with other payments companies.
• Restructuring andreorganization charges are expenses that result from cost reductioninitiatives and/or significant changes to CSG’s business, to includesuch things as involuntary employee terminations, changes inmanagement structure, divestitures of businesses, facilityconsolidations and abandonments, and fundamental reorganizationsimpacting operational focus and direction. These charges are notconsidered reflective of CSG’s recurring business operating results.The exclusion of these items in calculating CSG’s non-GAAP financialmeasures allows management and investors an additional means tocompare CSG’s current financial results with historical and futureperiods.
• Executive transition costs include expenses incurredrelated to a departure of a CSG executive officer under the terms ofthe related separation agreement. These types of costs are notconsidered reflective of CSG’s recurring business operating results.The exclusion of these costs in calculating CSG’s non-GAAP financialmeasures allows management and investors an additional means tocompare CSG’s current financial results with historical and futureperiods.
• Acquisition-related expenses include amortization ofacquired intangible assets, earn-out compensation, andtransaction-related costs. Transaction-related costs, which typicallyinclude expenses related to legal, accounting, and other professionalservices, are direct and incremental expenses related to businessacquisitions, and thus, are not considered reflective of CSG’srecurring business operating results. The total amount ofacquisition-related expenses can vary significantly between periodsbased on the number and size of acquisition activities, previouslyacquired intangible assets becoming fully amortized, and ultimaterealization of earn-out compensation. In addition, the timing of theseexpenses may not directly correlate with underlying performance of theCSG’s operations. Therefore, the exclusion of acquisition-relatedexpenses in calculating CSG’s non-GAAP financial measures allowsmanagement and investors an additional means to compare CSG’scurrent financial results with historical and future periods.
• Stock-based compensation results from CSG’s issuance ofequity awards to its employees under incentive compensation programs.The amount of this incentive compensation in any period is notgenerally linked to the level of performance by employees or CSG. Theexclusion of these expenses in calculating CSG’s non-GAAP financialmeasures allows management and investors an additional means toevaluate the non-cash expense related to compensation included inCSG’s results of operations, and therefore, the exclusion of thisitem allows investors to further evaluate the cash generatingcapabilities of CSG’s business.
• The convertible notes OIDis the result of allocating a portion of the principal balance of thedebt at issuance to the equity component of the instrument, asrequired under current accounting rules. This OID is then amortized tointerest expense over the life of the respective convertible debtinstrument. The interest expense related to the amortization of theOID is a non-cash expense, and therefore, the exclusion of this itemallows investors to further evaluate the cash interest costs ofCSG’s convertible notes for cash flow, liquidity, and debt servicepurposes.
• Gains and losses related to theextinguishment/conversion of debt can be as a result of therefinancing of CSG’s credit agreement and/or repurchase, conversion,or settlement of CSG’s convertible notes. These activities, toinclude any derivative activity related to debt conversions, are notconsidered 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 tofurther evaluate the cash impact of these activities for cash flow andliquidity purposes. In addition, the exclusion of these gains andlosses in calculating CSG’s non-GAAP EPS allows management andinvestors an additional means to compare CSG’s current operatingresults with historical and future periods.
• Gains or lossesrelated to the acquisition or disposition of certain of CSG’sbusiness activities are not considered reflective of CSG’s recurringbusiness operating results. Any resulting gain or loss is generallynon-cash income or expense, and therefore, the exclusion of theseitems allows investors to further evaluate the cash impact of theseactivities for cash flow and liquidity purposes. In addition, theexclusion of these gains and losses in calculating CSG’s non-GAAPEPS allows management and investors an additional means to compareCSG’s current operating results with historical and future periods.
• Unusual items within CSG’s quarterly and/or annual incometax expense can occur from such things as income tax accounting timingmatters, income taxes related to unusual events, or as a result ofdifferent treatment of certain items for book accounting and incometax purposes. Consideration of such items in calculating CSG’snon-GAAP financial measures allows management and investors anadditional means to compare CSG’s current financial results withhistorical and future periods.

CSG also reports non-GAAP adjusted EBITDA andnon-GAAP free cash flow. Management believes non-GAAP adjusted EBITDAis a useful measure to investors in evaluating CSG’s operatingperformance, debt servicing capabilities, and enterprise valuation.CSG defines non-GAAP adjusted EBITDA as income before interest, incometaxes, depreciation, amortization, stock-based compensation, foreigncurrency transaction adjustments, acquisition-related expenses, andunusual items, such as restructuring and reorganization charges,executive transition costs, gains and losses related to theextinguishment of debt, and gains and losses on acquisitions ordispositions, as discussed above. Additionally, management usesnon-GAAP free cash flow, among other measures, to assess its financialperformance and cash generating capabilities, and believes that it isuseful to investors because it shows CSG’s cash available to servicedebt, make strategic acquisitions and investments, repurchase itscommon stock, pay cash dividends, and fund ongoing operations. CSGdefines non-GAAP free cash flow as net cash flows from operatingactivities less the purchases of software, property and equipment.

Non-GAAPFinancial Measures

Non-GAAP Adjusted Revenue:

The reconciliations of GAAP revenue tonon-GAAP adjusted revenue for the indicated periods are as follows (inthousands):

Non-GAAP Operating Income:

The reconciliations of GAAP operating incometo non-GAAP operating income for the indicated periods are as follows(in thousands, except percentages):

(1) Stock-based compensationincluded in the tables above and following excludes amounts that havebeen recorded in restructuring and reorganization charges.

Non-GAAPEPS:

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

(2)For the quarters ended March 31, 2022 and 2021 the GAAP effectiveincome tax rates were approximately 8% and 26%, respectively, and thenon-GAAP effective income tax rates were approximately 27.5% and 27%,respectively. The first quarter of 2022 GAAP effective income tax ratewas impacted by the combination of lower net income and a discrete taxbenefit related to the vesting of equity-awards during thequarter.

(3) The outstanding diluted shares for thequarters ended March 31, 2022 and 2021 were 31.8 million and 32.1million, respectively.

Non-GAAP Adjusted EBITDA:

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

(4) Interest expenseincludes amortization of deferred financing costs as provided in Note5 below.

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

Non-GAAP Free Cash Flow:

CSG’s calculation of non-GAAP free cash flow and thereconciliation of CSG’s non-GAAP free cash flow measure to cashflows from operating activities are provided below for the indicatedperiods (in thousands):

Non-GAAP Financial Measures – 2022 FinancialGuidance

Non-GAAP Adjusted Revenue:

The reconciliation of GAAP revenue tonon-GAAP adjusted revenue, as included in CSG’s 2022 full yearpreliminary financial outlook, is as follows:

Non-GAAP OperatingIncome:

The reconciliation ofGAAP operating income to non-GAAP operating income, as included inCSG’s 2022 full year financial guidance, is as follows (inthousands, except percentages):

Non-GAAP EPS:

Thereconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2022full year financial guidance is as follows (in thousands, except pershare amounts):

(6)For 2022, the estimated effective income tax rate for GAAP andnon-GAAP purposes is expected to be approximately 26% and 27%,respectively.

(7) The weighted-average diluted shares outstandingare expected to be approximately 32 million.

Non-GAAP AdjustedEBITDA:

CSG’s calculation ofnon-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAPadjusted EBITDA measure to GAAP net income is provided below forCSG’s 2022 full year financial guidance (in thousands, exceptpercentages):

Non-GAAP Free CashFlow:

CSG’s calculation ofnon-GAAP free cash flow and the reconciliation of CSG’s non-GAAPfree cash flow measure to cash flows from operating activities isprovided below for the indicated period (in thousands):

ContactDetails

CSG

John Rea

+1210-687-4409

tammy.hovey@csgi.com

CompanyWebsite

https://www.csgi.com

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