CSGS - CSG Systems International Reports Third Quarter 2022 Results

(NewsDirect)

CSG (NASDAQ: CSGS) today reportedresults for the quarter ended September 30, 2022.

Financial Results:

Third quarter 2022 financialresults:

• Total revenue was $273.3 million and totalnon-GAAP adjusted revenue was $255.1 million .

• GAAP operating income was $20.0 million ,or 7.3% of total revenue, and non-GAAP operating incomewas $46.7 million , or 18.3% of non-GAAP adjustedrevenue.

ShareholderReturns:

• CSG declared its quarterly cash dividend of $0.265 per share of common stock, or a total of approximately $8million , to shareholders.
• During the third quarter of2022, CSG repurchased 488,000 shares of its common stock underits stock repurchase program for approximately $28million .

“After hitting some headwinds last quarter, Team CSGdelivered strong, healthy revenue growth in Q3 with 4.2% sequentialquarter-over-quarter growth. Further, on the back of our timelyOperating Margin Improvement Initiative, we reported non-GAAP adjustedoperating margin of 18.3%, one of our best results in recent memory. And we returned $91 million to shareholders via buybacks and dividendsduring the first nine months of the year,” said Brian Shepherd,President and Chief Executive Officer of CSG. “Looking forward, ourexciting Q3 results give us confidence that we can finish 2022 strongand build even better growth momentum for 2023.”

Financial Overview(unaudited)

(in thousands, exceptper share amounts and percentages):

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

Results of Operations

GAAPResults: Total revenue for the third quarter of 2022 was $273.3million, a 3.8% increase when compared to revenue of $263.2 millionfor the third quarter of 2021. This increase can be mainly attributedto the continued growth of CSG's revenue management solutions, asapproximately three-fourths of the increase was attributed to organicgrowth resulting mainly from increased payments volume and conversionsof customer accounts onto CSG solutions.

GAAP operating income for the third quarter of2022 was $20.0 million, or 7.3% of total revenue, compared to $32.8million, or 12.4% of total revenue, for the third quarter of 2021. Thedecrease in operating income can be primarily attributed to the $14.0million increase in restructuring and reorganization charges relatedmainly to an operating margin improvement initiative that began in thesecond quarter of 2022.

GAAP EPS for the third quarter of 2022 was $0.40, as comparedto $0.50 for the third quarter of 2021. The decrease in GAAP EPS canbe mainly attributed to the increase in restructuring andreorganization charges, discussed above, offset by a $6.2 million lossrecorded in the third quarter of 2021 related to CSG obtaining acontrolling interest in MobileCard.

Non-GAAP Results: Non-GAAP adjustedrevenue for the third quarter of 2022 was $255.1 million, a 3.3%increase when compared to non-GAAP adjusted revenue of $247.0 millionfor the third quarter of 2021. The increase in non-GAAP adjustedrevenue between periods is due to the factors discussed above.

Non-GAAP operatingincome for the third quarter of 2022 was $46.7 million, or 18.3% oftotal non-GAAP adjusted revenue, compared to $41.6 million, or 16.8%of total non-GAAP adjusted revenue for the third quarter of 2021. Theincreases in operating income and operating income margin can bemainly attributed to the higher revenue along with the marginimprovement initiatives, mentioned above.

Non-GAAP EPS for the third quarter of 2022 was$1.06 compared to $0.88 for the third quarter of 2021, with theincrease due to the factors discussed above.

Balance Sheet andCash Flows

Cash, cash equivalents and short-term investments as ofSeptember 30, 2022 were $147.3 million compared to $135.0 million asof June 30, 2022 and $233.7 million as of December 31, 2021. CSG hadnet cash flows from operations for the third quarters ended September30, 2022 and 2021 of $22.8 million and $46.1 million, respectively,and had non-GAAP free cash flow of $10.9 million and $38.7 million,respectively. These year-over-year decreases in quarterly cash flowsfrom operations and non-GAAP free cash flow are mainly attributed tounfavorable changes in working capital, resulting mainly from thetiming of payment of employee wages and the accrual of the annualbonus, and deferred revenue related to a large internationalimplementation project.

Summary of Financial Guidance

CSG is updating its financial guidance for the 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, November 2, 2022 at 5:00 p.m. ET todiscuss CSG’s third 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 about CSG, please visit CSG’s website at csgi.com . Additionalinformation can be found in the Investor Relations section of thewebsite.

AboutCSG

CSGempowers companies to build unforgettable experiences, making iteasier for people and businesses to connect with, use and pay for theservices they value most. Our customer experience, billing andpayments solutions help companies of any size make money and make adifference. With our SaaS solutions, company leaders can take controlof their future, and tap into guidance along the way from our morethan 5k-strong experienced global CSG services team.

Want to learn more abouthow to be a change maker and industry shaper like our 1,000-plusclients? Visit csgi.com to learnmore.

Forward-Looking Statements

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:

1. CSG derives approximately forty percentof its revenue from its two largest customers;
2. Fluctuationsin credit market conditions, general global economic and politicalconditions, and foreign currency exchange rates;
3. CSG’sability 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 productsin a timely, cost-effective, technically advanced and competitivemanner;
6. CSG’s ability to deliver its solutions in a timelyfashion within budget, particularly large and complex softwareimplementations;
7. CSG’s dependency on the globaltelecommunications industry, and in particular, the North Americantelecommunications industry;
8. CSG’s ability to meet itsfinancial expectations;
9. Increasing competition in CSG’smarket from companies of greater size and with broader presence;
10. CSG’s ability to successfully integrate and manage acquiredbusinesses or assets to achieve expected strategic, operating andfinancial goals;
11. CSG’s ability to protect its intellectualproperty rights;
12. CSG’s ability to conduct business in theinternational marketplace;
13. CSG’s ability to comply withapplicable U.S. and International laws and regulations; and
14. 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 SYSTEMSINTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

EXHIBIT 1

CSG SYSTEMS INTERNATIONAL, INC.

SUPPLEMENTALREVENUE ANALYSIS

Revenue by Significant Customers: 10% or more ofRevenue

Revenue by Vertical

Revenue by Geography

EXHIBIT 2

CSG SYSTEMSINTERNATIONAL, INC.

DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES

Use of Non-GAAPFinancial Measures and Limitations

To supplement its condensed consolidatedfinancial statements presented in accordance with generally acceptedaccounting principles (GAAP), CSG uses non-GAAP adjusted revenue,non-GAAP operating income, non-GAAP adjusted operating marginpercentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP freecash flow. CSG believes that these non-GAAP financial measures, whenreviewed in conjunction with its GAAP financial measures, provideinvestors with greater transparency to the information used by CSG’smanagement in its financial and operational decision making. CSG usesthese non-GAAP financial measures for the following purposes:

•Certain internal financial planning, reporting, and analysis;

• Forecasting and budgeting;

• Certain managementcompensation incentives; and

• Communications with CSG’sBoard of Directors, stockholders, financial analysts, and investors.

These non-GAAPfinancial measures are provided with the intent of providing investorswith the following information:

• A more completeunderstanding of CSG’s underlying operational results, trends, andcash generating capabilities;

• Consistency andcomparability with CSG’s historical financial results; and

• Comparability to similar companies, many of which present similarnon-GAAP financial measures to investors.

Non-GAAP financial measures are not measuresof performance 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;

• The way 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.

CSGcompensates for these limitations by relying primarily on its GAAPresults and using non-GAAP financial measures as a supplement only.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 that excluding certain items incalculating its non-GAAP financial measures provides meaningfulsupplemental information regarding CSG’s performance and these itemsare excluded for the following reasons:

1. Transaction fees are primarily comprised of interchange andother payment-related fees paid, in conjunction with the delivery ofservice to customers under CSG’s payment services contracts, tothird-party payment processors and financial institutions by CSG.Because CSG controls the integrated service provided under its paymentservices customer contracts, these transaction fees are presentedgross, and not netted against revenue; however, other paymentscompanies who do not provide and/or control an integrated servicepresent their revenue net of transaction fees. The exclusion of thesefees in calculating CSG’s non-GAAP adjusted revenue providesmanagement and investors an additional means to use to compare CSG’scurrent revenue with historical and future periods, as well as withother payments companies.
2. Restructuring and reorganizationcharges are expenses that result from cost reduction initiativesand/or significant changes to CSG’s business, to include such thingsas involuntary 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.
3. 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 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 of equityawards to its employees under incentive compensation programs. Theamount of this incentive compensation in any period is not generallylinked to the level of performance by employees or CSG. The exclusionof these expenses in calculating CSG’s non-GAAP financial measuresallows management and investors an additional means to evaluate thenon-cash expense related to compensation included in CSG’s resultsof operations, and therefore, the exclusion of this item allowsinvestors to further evaluate the cash generating capabilities ofCSG’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.

1. 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.
2. 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.
3. 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-GAAP FinancialMeasures

Non-GAAP Adjusted Revenue:

The reconciliations of GAAP revenue to non-GAAP adjustedrevenue for the indicated periods are as follows (inthousands):

Non-GAAP OperatingIncome:

The reconciliations ofGAAP operating income to non-GAAP operating income for the indicatedperiods are as follows (in thousands, except percentages):

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

(2)During the third quarter of 2021, CSG acquired a controlling interestin MobileCard, in which it had previously held only an equity interestin. Upon acquisition of the controlling interest, CSG recognized anon-cash loss in other income (expense) related to the fair valueremeasurement of the pre-existing equity investment.

(3) For the third quarter and nine months ended September 30, 2022 theGAAP 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 endedSeptember 30, 2021 the GAAP effective income tax rates wereapproximately 28% for both periods, and the non-GAAP effective incometax rates were 27% for both periods.

(4) The outstanding dilutedshares for the third quarter and nine months ended September 30, 2022were 31.2 million and 31.5 million, respectively, and for the thirdquarter and nine months ended September 30, 2021 were 32.0 million forboth periods.

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):

(5)Interest expense includes amortization of deferred financing costs asprovided in Note 6 below.

(6) 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 Adjusted Revenue:

The reconciliation of GAAP revenue tonon-GAAP adjusted revenue, as included in CSG’s 2022 full yearfinancial 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):

(7)For 2022, the estimated effective income tax rate for GAAP andnon-GAAP purposes is expected to be approximately 29% and 27.5%,respectively.

(8) The weighted-average diluted sharesoutstanding are expected to be approximately 31.4 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

Copyright (c) 2022 TheNewswire - All rights reserved.