CSGS - CSG Systems International Reports Second Quarter 2022 Results

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Signed One of theLargest Telecom Wins in CSG History with New Latin American Customer

Successfully Migrated ~75% of New Charter SubscribersThrough Q2 2022

Returned $55 Million to Shareholders via Share Repurchases& Dividends in H1 2022

CSG (NASDAQ:CSGS) today reported results for the quarter ended June 30, 2022.

FinancialResults:

Second quarter 2022financial results:

• Total revenue was $262.2 million and totalnon-GAAP adjusted revenue was $243.5 million .

• GAAP operating income was $7.3 million , or 2.8% of total revenue, and non-GAAP operating income was $36.7 million , or 15.1% of non-GAAP adjusted revenue.

• GAAP earnings per dilutedshare (EPS) was $0.17 and non-GAAP EPS was $0.84 .

• Cash flows used in operations were ($7.7) million , with a non-GAAP free cash flow deficit of( $17.0) 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 thesecond quarter of 2022, CSG repurchased under its stock repurchaseprogram, approximately 360,000 shares of its common stock forapproximately $22 million .

“With the backdrop of a turbulentmacro-economic environment, Team CSG grew first half sales bookingsmore than 10% year-over-year, won several exciting new customer deals,and successfully migrated approximately 75% of the new Chartersubscribers, paving the way for 3.6% year-over-year growth in bothrevenue and non-GAAP EPS in the first half,” said Brian Shepherd,President and Chief Executive Officer of CSG. “We also encounteredchallenges that eroded non-GAAP adjusted operating margin more than 1%point and impacted our cash flow in the quarter which CSG leadershipis already addressing with a meaningful margin improvement initiativebegun in Q2 to ensure we have strong CSG-like profitability in Q3, Q4,and beyond.”

Financial Overview (unaudited)

(in thousands, exceptper 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 second quarter of 2022 was $262.2 million, a2.8% increase when compared to revenue of $255.1 million for thesecond quarter of 2021. Over half of this increase is due to therevenue generated from the businesses CSG acquired in 2021, with theremaining amount attributed to the continued organic growth of CSG’srevenue management solutions.

GAAP operating income for the second quarter of2022 was $7.3 million, or 2.8% of total revenue, compared to $32.2million, or 12.6% of total revenue, for the second quarter of 2021.The decrease in operating income can be primarily attributed to the$17 million increase in restructuring and reorganization charges. Thesecond quarter of 2022 restructuring and reorganization chargesrelated primarily to real estate restructurings as CSG continues torationalize its real estate footprint to reflect a flexible workapproach, and impairments related to the dissolution of CSG’scontrolling interest in MobileCard, as the investment was not meetingits projected targets.

GAAP EPS for the second quarter of 2022 was $0.17, as comparedto $0.60 for the second quarter of 2021. The decrease in GAAP EPS canbe mainly attributed to the factors discussed above.

Non-GAAPResults: Non-GAAP adjusted revenue for the second quarter of2022 was $243.5 million, a 2.1% increase when compared to non-GAAPadjusted revenue of $238.5 million for the second quarter of 2021. Theincrease in non-GAAP adjusted revenue between periods is due to thefactors discussed above.

Non-GAAP operating income for the second quarter of 2022 was$36.7 million, or 15.1% of total non-GAAP adjusted revenue, comparedto $39.8 million, or 16.7% of total non-GAAP adjusted revenue for thesecond quarter of 2021. The decreases in operating income andoperating income margin can be mainly attributed to the businessesacquired in 2021, as those businesses are operating at a loweroperating margin level than CSG’s organic business and require timeto realize the expected synergies, increased staffing related torecently closed large deals and upcoming projects, inflationary andsupply chain pressures, and increased travel expenses.

Non-GAAP EPS for thesecond quarter of 2022 was $0.84 compared to $0.82 for the secondquarter of 2021.

Balance Sheet and Cash Flows

Cash, cash equivalentsand short-term investments as of June 30, 2022 were $135.0 millioncompared to $187.6 million as of March 31, 2022 and $233.7 million asof December 31, 2021. CSG had net cash flows from operations for thesecond quarters ended June 30, 2022 and 2021 of ($7.7) million and$44.5 million, respectively, and had non-GAAP free cash flow of($17.0) million and $37.5 million, respectively. Cash flows for thesecond quarter of 2022 were negatively impacted by unfavorable changesin working capital.

Summary of Financial Guidance

CSG is updating its financial guidance forthe full year 2022, as follows:

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 .

Conference Call

CSG will host aconference call on Wednesday, August 3, 2022 at 5:00 p.m. ET todiscuss CSG’s second quarter 2022 earnings results. The call will beconducted 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 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 releasecontains forward-looking statements as defined under the SecuritiesAct of 1933, as amended, that are based on assumptions about a numberof important factors and involve risks and uncertainties that couldcause actual results to differ materially from what appears in thisnews release. Some of these key factors include, but are not limitedto the following items:

• CSG derives approximately fortypercent of its revenue from its two largest customers;
• Fluctuations in credit market conditions, general globaleconomic and political conditions, and foreign currency exchangerates;
• CSG’s ability to maintain a reliable, securecomputing environment;
• Continued market acceptance of CSG’sproducts and services;
• CSG’s ability to continuouslydevelop and enhance products in a timely, cost-effective, technicallyadvanced and competitive manner;
• CSG’s ability to deliverits solutions in a timely fashion within budget, particularly largeand complex software implementations;
• CSG’s dependency onthe global telecommunications industry, and in particular, the NorthAmerican telecommunications industry;
• CSG’s ability to meetits financial 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)

EXHIBIT 1

CSG SYSTEMS INTERNATIONAL, INC.

SUPPLEMENTALREVENUE ANALYSIS

Revenue by Significant Customers: 10% or more ofRevenue

Revenue byVertical

Revenue byGeography

EXHIBIT 2

CSG SYSTEMSINTERNATIONAL, INC.

DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES

Use of Non-GAAPFinancial 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 internal financial planning, reporting, andanalysis;
• Forecasting and budgeting;
• Certainmanagement compensation incentives; and
• Communications withCSG’s Board of Directors, stockholders, financial analysts, andinvestors.
• 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 ofperformance under GAAP, and therefore should not be considered inisolation or as a substitute for GAAP financial information.Limitations with the use of non-GAAP financial measures include thefollowing items:
• Non-GAAP financial measures are not based onany comprehensive set of accounting rules or principles;
• Theway in which CSG calculates non-GAAP financial measures may differfrom the way in which other companies calculate similar non-GAAPfinancial measures;
• Non-GAAP financial measures do notinclude all items of income and expense that affect CSG’s operationsand that are 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:

• Transactionfees are primarily comprised of interchange and other payment-relatedfees paid, in conjunction with the delivery of service to customersunder CSG’s payment services contracts, to third-party paymentprocessors and financial institutions by CSG. Because CSG controls theintegrated service provided under its payment services customercontracts, these transaction fees are presented gross, and not nettedagainst revenue; however, other payments companies who do not provideand/or control an integrated service present their revenue net oftransaction fees. The exclusion of these fees in calculating CSG’snon-GAAP adjusted revenue provides management and investors anadditional means to use to compare CSG’s current revenue withhistorical and future periods, as well as with other paymentscompanies.
• Restructuring and reorganization charges areexpenses that result from cost reduction initiatives and/orsignificant changes to CSG’s business, to include such things asinvoluntary employee terminations, changes in management structure,divestitures of businesses, facility consolidations and abandonments,and fundamental reorganizations impacting operational focus anddirection. These charges are not considered reflective of CSG’srecurring business operating results. The exclusion of these items incalculating CSG’s non-GAAP financial measures allows management andinvestors an additional means to compare CSG’s current financialresults with historical and future periods.
• Executivetransition costs include expenses incurred related to a departure of aCSG executive officer under the terms of the related separationagreement. These types of costs are not considered reflective ofCSG’s recurring business operating results. The exclusion of thesecosts 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.
• Acquisition-related expenses include amortization of acquiredintangible assets, earn-out compensation, and transaction-relatedcosts. Transaction-related costs, which typically include expensesrelated to legal, accounting, and other professional services, aredirect and incremental expenses related to business acquisitions, andthus, are not considered reflective of CSG’s recurring businessoperating results. The total amount of acquisition-related expensescan vary significantly between periods based on the number and size ofacquisition activities, previously acquired intangible assets becomingfully amortized, and ultimate realization of earn-out compensation. Inaddition, the timing of these expenses may not directly correlate withunderlying performance of the CSG’s operations. Therefore, theexclusion of acquisition-related expenses in calculating CSG’snon-GAAP financial measures allows management and investors anadditional means to compare CSG’s current financial results withhistorical and future periods.
• Stock-based compensationresults from CSG’s issuance of equity awards to its employees underincentive compensation programs. The amount of this incentivecompensation in any period is not generally linked to the level ofperformance by employees or CSG. The exclusion of these expenses incalculating CSG’s non-GAAP financial measures allows management andinvestors an additional means to evaluate the non-cash expense relatedto compensation included in CSG’s results of operations, andtherefore, the exclusion of this item allows investors to furtherevaluate the cash generating capabilities of CSG’s business.
• The convertible notes OID is the result of allocating aportion of the principal balance of the debt at issuance to the equitycomponent of the instrument, as required under current accountingrules. This OID is then amortized to interest expense over the life ofthe respective convertible debt instrument. The interest expenserelated to the amortization of the OID is a non-cash expense, andtherefore, the exclusion of this item allows investors to furtherevaluate the cash interest costs of CSG’s convertible notes for cashflow, liquidity, and debt service purposes.
• Gains and lossesrelated to the extinguishment/conversion of debt can be as a result ofthe refinancing of CSG’s credit agreement and/or repurchase,conversion, or settlement of CSG’s convertible notes. Theseactivities, to include any derivative activity related to debtconversions, 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.
• Gains or losses related to the acquisition or disposition ofcertain of CSG’s business activities are not considered reflectiveof CSG’s recurring business operating results. Any resulting gain orloss is generally non-cash income or expense, and therefore, theexclusion of these items allows investors to further evaluate the cashimpact of these activities for cash flow and liquidity purposes. Inaddition, the exclusion of these gains and losses in calculatingCSG’s non-GAAP EPS allows management and investors an additionalmeans to compare CSG’s current operating results with historical andfuture periods.
• Unusual items within CSG’s quarterlyand/or annual income tax expense can occur from such things as incometax accounting timing matters, income taxes related to unusual events,or as a result of different treatment of certain items for bookaccounting and income tax purposes. Consideration of such items incalculating CSG’s non-GAAP financial measures allows management andinvestors an additional means to compare CSG’s current financialresults with historical and future periods.

CSG also reportsnon-GAAP adjusted EBITDA and non-GAAP free cash flow. Managementbelieves non-GAAP adjusted EBITDA is a useful measure to investors inevaluating CSG’s operating performance, debt servicing capabilities,and enterprise valuation. CSG defines non-GAAP adjusted EBITDA asincome before interest, income taxes, depreciation, amortization,stock-based compensation, foreign currency transaction adjustments,acquisition-related expenses, and unusual items, such as restructuringand reorganization charges, executive transition costs, gains andlosses related to the extinguishment of debt, and gains and losses onacquisitions or dispositions, as discussed above. Additionally,management uses non-GAAP free cash flow, among other measures, toassess its financial performance and cash generating capabilities, andbelieves that it is useful to investors because it shows CSG’s cashavailable to service debt, make strategic acquisitions andinvestments, repurchase its common stock, pay cash dividends, and fundongoing operations. CSG defines non-GAAP free cash flow as net cashflows from operating activities less the purchases of software,property and equipment.

Non-GAAP Financial Measures

Non-GAAP AdjustedRevenue:

The reconciliationsof GAAP revenue to non-GAAP adjusted revenue for the indicated periodsare as follows (in thousands):

Non-GAAP OperatingIncome:

The reconciliationsof GAAP operating income to non-GAAP operating income for theindicated periods are as follows (in thousands, exceptpercentages):

(1) Restructuring andreorganization charges include stock-based compensation, which is notincluded in the stock-based compensation line in the tables above andfollowing, and depreciation, which has not been recorded to thedepreciation line item on the Income Statement.

Non-GAAP EPS:

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

(2)For the second quarter and six months ended June 30, 2022 the GAAPeffective income tax rates were approximately 26% and 17%,respectively, and the non-GAAP effective income tax rates were 27.5%,for both periods. For the second quarter and six months ended June 30,2021 the GAAP effective income tax rates were approximately 30% and28%, respectively, and the non-GAAP effective income tax rates were27%, for both periods.

(3) The outstanding diluted shares for thesecond quarter and six months ended June 30, 2022 were 31.5 millionand 31.7 million, respectively, and for the second quarter and sixmonths ended June 30, 2021 were 32.0 million and 32.1 million,respectively.

Non-GAAP Adjusted EBITDA:

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

(4)Interest expense includes amortization of deferred financing costs asprovided in Note 5 below.

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

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 areprovided below for the indicated periods (in thousands):

Non-GAAP FinancialMeasures – 2022 Financial Guidance

Non-GAAP AdjustedRevenue:

The reconciliation ofGAAP revenue to non-GAAP adjusted revenue, as included in CSG’s 2022full year financial guidance, 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 31.6 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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