CSG Systems International Reports Third Quarter 2023 Results

Rhea-AI Summary

CSG reported strong financial results for Q3 2023, with total revenue of $286.9 million and non-GAAP EPS of $0.92. They repurchased $107 million of shares, the most since Q3 2007, and raised $425 million in convertible debt. YTD organic revenue is up 9.0% YoY, the best in nearly two decades.

YTD Organic Revenue Up 9.0% YoY Representing CSG’s Best YTD Results in Nearly Two Decades

Raising Non-GAAP EPS Guidance & Reiterating All Other Financial Guidance Metrics

Repurchased $107 Million of Shares in Q3, Most Quarterly Share Repurchases Since Q3 2007

Successfully Executed $425 Million Convertible Debt Raise in Q3

DENVER--(BUSINESS WIRE)-- CSG (NASDAQ: CSGS) today reported results for the quarter ended September 30, 2023.

Financial Results:

Third quarter 2023 financial results:

• Total revenue was $286.9 million.
• GAAP operating income was $32.7 million, or an operating margin of 11.4%, and non-GAAP operating income was $45.2 million, or a non-GAAP adjusted operating margin of 17.0%.
• GAAP earnings per diluted share (EPS) was $0.62 and non-GAAP EPS was $0.92.
• Cash flows from operations were $24.6 million, with non-GAAP free cash flow of $18.1 million.

Shareholder Returns:

• CSG declared its quarterly cash dividend of $0.28 per share of common stock, or a total of approximately $9 million, to shareholders.
• During the third quarter of 2023, CSG repurchased under its stock repurchase program, approximately 1,991,000 shares of its common stock for approximately $107 million.

Business Activities:

• In September 2023, CSG issued $425.0 million of convertible notes (2023 Convertible Notes) due in 2028.

“Team CSG had a fantastic first nine months of 2023. We delivered strong financial results across the board highlighted by 9.0% year-over-year organic revenue growth, our strongest first nine-month results in nearly two decades,” said Brian Shepherd, President and Chief Executive Officer of CSG. “During the quarter we completed a successful $425 million convertible debt raise, which lowered our interest rate to 3.875% and significantly decreased our exposure to floating rate debt. We also completed our previously announced $100 million stock repurchase program in the quarter, as we bought back $107 million shares in Q3. Finally, we are raising our non-GAAP EPS guidance and reiterating all other financial targets.”

Financial Overview (unaudited)

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

		Quarter Ended September 30,												Nine Months Ended September 30,
										Percent												Percent
		2023				2022				Changed				2023				2022				Changed
GAAP Results:
Revenue		$	286,868			$	273,308				5.0	%		$	871,934			$	799,876				9.0	%
Operating Income			32,731				19,977				63.8	%			99,130				43,675				127.0	%
Operating Margin Percentage			11.4	%			7.3	%							11.4	%			5.5	%
EPS		$	0.62			$	0.40				55.0	%		$	1.75			$	0.76				130.3	%
Non-GAAP Results:
Operating Income		$	45,203			$	46,747				(3.3	%)		$	141,664			$	123,673				14.5	%
Adjusted Operating Margin Percentage			17.0	%			18.3	%							17.5	%			16.6	%
EPS		$	0.92			$	1.06				(13.2	%)		$	2.76			$	2.76				0.0	%

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 2023 was $286.9 million, a 5.0% increase when compared to revenue of $273.3 million for the third quarter of 2022. The year-over-year increase can be mainly attributed to the continued growth of CSG’s revenue management solutions, to include the conversion of customer accounts on CSG solutions, other ancillary services and increased payments volumes.

GAAP operating income for the third quarter of 2023 was $32.7 million, or 11.4% of total revenue, compared to $20.0 million, or 7.3% of total revenue, for the third quarter of 2022. The increase in operating income can be mainly attributed to the $13.0 million decrease in restructuring and reorganization charges between years.

GAAP EPS for the third quarter of 2023 was $0.62, as compared to $0.40 for the third quarter of 2022. The increase in GAAP EPS is mainly due to the higher operating income in the third quarter of 2023, discussed above, partially offset by higher interest expense and foreign currency movements.

Non-GAAP Results: Non-GAAP operating income for the third quarter of 2023 was $45.2 million, or a non-GAAP adjusted operating margin of 17.0%, compared to $46.7 million, or a non-GAAP adjusted operating margin of 18.3% for the third quarter of 2022.

Non-GAAP EPS for the third quarter of 2023 was $0.92 compared to $1.06 for the third quarter of 2022. The decrease in non-GAAP EPS is mainly due to higher interest expense and foreign currency movements.

Balance Sheet and Cash Flows

Cash, cash equivalents, and short-term investments as of September 30, 2023 were $146.7 million compared to $146.2 million as of June 30, 2023 and $150.4 million as of December 31, 2022. CSG had net cash flows provided by operations for the third quarters ended September 30, 2023 and 2022 of $24.6 million and $22.8 million, respectively, and had non-GAAP free cash flow of $18.1 million and $10.9 million, respectively.

Summary of Financial Guidance

CSG is revising its financial guidance for the full year 2023, as follows:

		As of November 1, 2023		Previous
GAAP Measures:
Revenue		No change		$1,150 - $1,175 million
Non-GAAP Measures:
Adjusted Operating Margin Percentage		No change		16.75% - 17.1%
EPS		$3.50 - $3.70		$3.42 - $3.58
Adjusted EBITDA		No change		$238 - $245 million
Free Cash Flow		No change		$80 - $120 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 1, 2023 at 5:00 p.m. ET, to discuss CSG’s third quarter 2023 earnings results. The call will be carried live and archived on the Internet. A link to the conference call is available at http://ir.csgi.com. In addition, to reach the conference by phone, call 1-888-412-4131 and use the passcode 2327393.

Additional Information

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

About CSG

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

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

Forward-Looking Statements

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

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

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

CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED
(in thousands)
		September 30, 2023				December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents		$	146,730			$	150,365
Short-term investments			-				71
Total cash, cash equivalents, and short-term investments			146,730				150,436
Settlement and merchant reserve assets			193,371				238,653
Trade accounts receivable:
Billed, net of allowance of $4,731 and $5,528			275,161				274,189
Unbilled			83,612				52,830
Income taxes receivable			2,492				1,270
Other current assets			58,701				48,577
Total current assets			760,067				765,955
Non-current assets:
Property and equipment, net of depreciation of $118,424 and $105,466			68,029				71,787
Operating lease right-of-use assets			37,196				49,687
Software, net of amortization of $159,451 and $150,337			16,741				22,774
Goodwill			302,996				304,036
Acquired customer contracts, net of amortization of $127,490 and $120,080			37,932				45,417
Customer contract costs, net of amortization of $38,174 and $30,601			53,336				54,735
Deferred income taxes			46,271				26,206
Other assets			7,034				7,956
Total non-current assets			569,535				582,598
Total assets		$	1,329,602			$	1,348,553
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt		$	22,500			$	37,500
Operating lease liabilities			16,915				21,012
Customer deposits			33,084				40,472
Trade accounts payable			42,623				47,720
Accrued employee compensation			64,313				68,321
Settlement and merchant reserve liabilities			191,637				237,810
Deferred revenue			61,419				46,033
Income taxes payable			2,211				5,455
Other current liabilities			26,831				22,886
Total current liabilities			461,533				527,209
Non-current liabilities:
Long-term debt, net of unamortized discounts of $16,502 and $2,656			535,998				375,469
Operating lease liabilities			37,574				53,207
Deferred revenue			20,828				21,991
Income taxes payable			3,243				3,410
Deferred income taxes			128				117
Other non-current liabilities			9,807				11,901
Total non-current liabilities			607,578				466,095
Total liabilities			1,069,111				993,304
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding			-				-
Common stock, par value $.01 per share; 100,000 shares authorized; 29,726 and 31,269 shares outstanding			713				708
Additional paid-in capital			483,063				495,189
Treasury stock, at cost; 40,202 and 38,210 shares			(1,125,897	)			(1,018,034	)
Accumulated other comprehensive income (loss):
Unrealized gain on short-term investments, net of tax			1				1
Cumulative foreign currency translation adjustments			(60,773	)			(58,830	)
Accumulated earnings			963,384				936,215
Total stockholders' equity			260,491				355,249
Total liabilities and stockholders' equity		$	1,329,602			$	1,348,553

CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)
	Quarter Ended								Nine Months Ended
	September 30, 2023				September 30, 2022				September 30, 2023				September 30, 2022
Revenue	$	286,868			$	273,308			$	871,934			$	799,876
Cost of revenue (exclusive of depreciation, shown separately below)		152,734				138,462				458,897				415,014
Other operating expenses:
Research and development		35,292				35,754				107,401				103,365
Selling, general and administrative		59,097				59,026				180,930				173,833
Depreciation		5,862				5,896				17,155				17,685
Restructuring and reorganization charges		1,152				14,193				8,421				46,304
Total operating expenses		254,137				253,331				772,804				756,201
Operating income		32,731				19,977				99,130				43,675
Other income (expense):
Interest expense		(8,036	)			(4,328	)			(23,092	)			(10,286	)
Interest and investment income, net		1,175				281				2,516				537
Loss on derivative liability upon debt conversion		-				-				-				(7,456	)
Other, net		813				2,790				(3,047	)			6,044
Total other		(6,048	)			(1,257	)			(23,623	)			(11,161	)
Income before income taxes		26,683				18,720				75,507				32,514
Income tax provision		(7,989	)			(6,239	)			(21,931	)			(8,603	)
Net income	$	18,694			$	12,481			$	53,576			$	23,911
Weighted-average shares outstanding:
Basic		30,097				30,941				30,381				31,219
Diluted		30,284				31,159				30,540				31,487
Earnings per common share:
Basic	$	0.62			$	0.40			$	1.76			$	0.77
Diluted		0.62				0.40				1.75				0.76

CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
	Nine Months Ended
	September 30, 2023				September 30, 2022
Cash flows from operating activities:
Net income	$	53,576			$	23,911
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation		17,549				21,817
Amortization		34,543				36,470
Asset impairment		1,689				30,126
Gain on lease modifications		(4,349	)			-
Loss on short-term investments and other		-				19
Loss on derivative liability upon debt conversion		-				7,456
Unrealized foreign currency transactions gain, net		(442	)			(1,700	)
Deferred income taxes		(12,504	)			(16,457	)
Stock-based compensation		21,253				20,778
Subtotal		111,315				122,420
Changes in operating assets and liabilities, net of acquired amounts:
Trade accounts receivable, net		(33,351	)			(22,026	)
Other current and non-current assets and liabilities		(11,449	)			(16,430	)
Income taxes payable/receivable		(4,650	)			(7,188	)
Trade accounts payable and accrued liabilities		(24,158	)			(67,053	)
Deferred revenue		14,658				(150	)
Net cash provided by operating activities		52,365				9,573
Cash flows from investing activities:
Purchases of software, property and equipment		(22,940	)			(31,564	)
Proceeds from sale/maturity of short-term investments		71				27,447
Net cash used in investing activities		(22,869	)			(4,117	)
Cash flows from financing activities:
Proceeds from issuance of common stock		2,541				2,217
Payment of cash dividends		(26,231	)			(25,396	)
Repurchase of common stock		(116,418	)			(73,380	)
Deferred acquisition payments		(3,220	)			(1,959	)
Proceeds from long-term debt		470,000				290,000
Payments on long-term debt		(310,625	)			(247,926	)
Purchase of capped call transactions related to convertible notes		(34,298	)			-
Payments of deferred financing costs		(13,518	)			-
Settlement and merchant reserve activity		(46,196	)			(13,931	)
Net cash used in financing activities		(77,965	)			(70,375	)
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash		(448	)			(7,689	)
Net decrease in cash, cash equivalents, and restricted cash		(48,917	)			(72,608	)
Cash, cash equivalents, and restricted cash, beginning of period		389,018				391,902
Cash, cash equivalents, and restricted cash, end of period	$	340,101			$	319,294
Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest	$	21,772			$	12,367
Income taxes		39,136				31,817
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	146,730			$	146,685
Settlement and merchant reserve assets		193,371				172,609
Total cash, cash equivalents, and restricted cash	$	340,101			$	319,294

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, 2023								June 30, 2023								September 30, 2022
		Amount				% of Revenue				Amount				% of Revenue				Amount				% of Revenue
Charter		$	59,432				21	%		$	60,175				21	%		$	57,974				21	%
Comcast			53,653				19	%			53,757				19	%			53,533				20	%

Revenue by Vertical
		Quarter Ended				Quarter Ended				Quarter Ended
		September 30,				June 30,				September 30,
		2023				2023				2022
Broadband/Cable/Satellite			53	%			54	%			55	%
Telecommunications			20	%			18	%			20	%
All other			27	%			28	%			25	%
Total revenue			100	%			100	%			100	%

Revenue by Geography
		Quarter Ended				Quarter Ended				Quarter Ended
		September 30,				June 30,				September 30,
		2023				2023				2022
Americas			86	%			87	%			86	%
Europe, Middle East and Africa			9	%			9	%			10	%
Asia Pacific			5	%			4	%			4	%
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 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		Operating Income		Adjusted Operating Margin Percentage		EPS
Transaction fees		—		X		—
Restructuring and reorganization charges		X		X		X
Executive transition costs		X		X		X
Acquisition-related expenses:
Amortization of acquired intangible assets		X		X		X
Transaction-related costs		X		X		X
Stock-based compensation		X		X		X
Gain (loss) on debt extinguishment/conversion		—		—		X
Gain (loss) on acquisitions or dispositions		—		—		X
Unusual income tax matters		—		—		X

CSG believes that excluding certain items in calculating its non-GAAP financial measures provides meaningful supplemental information regarding CSG’s performance and these items are excluded for the following reasons:

• Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG’s Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors.
• Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/or significant changes to CSG’s business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. These charges are not considered reflective of CSG’s recurring business operating results. The exclusion of these items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.
• Executive transition costs include expenses incurred related to a departure of a CSG executive officer under the terms of the related separation agreement. These types of costs are not considered reflective of CSG’s recurring business operating results. The exclusion of these costs in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.
• Acquisition-related expenses include amortization of acquired intangible assets and transaction-related costs, to include earn-out compensation. Transaction-related costs, which typically include expenses related to legal, accounting, and other professional services, are direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSG’s recurring business operating results. The total amount of acquisition-related expenses can vary significantly between periods based on the number and size of acquisition activities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-out compensation. In addition, the timing of these expenses may not directly correlate with underlying performance of the CSG’s operations. Therefore, the exclusion of acquisition-related expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.
• Stock-based compensation results from CSG’s issuance of equity awards to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG. The exclusion of these expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSG’s results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s business.
• Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancing of CSG’s credit agreement and/or repurchase, conversion, or settlement of CSG’s convertible notes. These activities, to include any derivative activity related to debt conversions, are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods.
• Gains or losses related to the acquisition or disposition of certain of CSG’s business activities are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods.
• Unusual items within CSG’s quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.

CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash flow. Management believes non-GAAP adjusted EBITDA is a useful measure to investors in evaluating CSG’s operating performance, debt servicing capabilities, and enterprise valuation. CSG defines non-GAAP adjusted EBITDA as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency transaction adjustments, acquisition-related expenses, and unusual items, such as restructuring and reorganization charges, executive transition costs, gains and losses related to the extinguishment of debt, and gains and losses on acquisitions or dispositions, as discussed above. Additionally, management uses non-GAAP free cash flow, among other measures, to assess its financial performance and cash generating capabilities, and believes that it is useful to investors because it shows CSG’s cash available to service debt, make strategic acquisitions and investments, repurchase its common stock, pay cash dividends, and fund ongoing operations. CSG defines non-GAAP free cash flow as net cash flows from operating activities less the purchases of software, property and equipment.

Non-GAAP Financial Measures

Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage:

The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of CSG’s non- GAAP adjusted operating margin percentage, for the indicated periods are as follows (in thousands, except percentages):

		Quarter Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Non-GAAP Operating Income
GAAP operating income		$	32,731			$	19,977			$	99,130			$	43,675
Restructuring and reorganization charges (1)			1,152				14,193				8,421				46,304
Executive transition costs			1,148				27				1,148				1,302
Acquisition-related expenses:
Amortization of acquired intangible assets			2,996				3,405				9,203				11,017
Transaction-related costs			(40	)			495				2,122				469
Stock-based compensation (1)			7,216				8,650				21,640				20,906
Non-GAAP operating income		$	45,203			$	46,747			$	141,664			$	123,673
Non-GAAP Adjusted Operating Margin Percentage
Revenue		$	286,868			$	273,308			$	871,934			$	799,876
Less: Transaction fees (2)			(20,314	)			(18,177	)			(63,463	)			(54,928	)
Revenue less transaction fees		$	266,554			$	255,131			$	808,471			$	744,948
Non-GAAP adjusted operating margin percentage			17.0	%			18.3	%			17.5	%			16.6	%

(1)		Restructuring and reorganization charges include stock-based compensation, which is not included in the stock-based compensation line in the tables above and following, and depreciation, which has not been recorded to the depreciation line item on CSG’s Income Statement.
(2)		Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG's Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors.

Non-GAAP EPS:

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

		Quarter Ended								Quarter Ended
		September 30, 2023								September 30, 2022
		Amounts				EPS (4)				Amounts				EPS (4)
GAAP net income		$	18,694			$	0.62			$	12,481			$	0.40
GAAP income tax provision (3)			7,989								6,239
GAAP income before income taxes			26,683								18,720
Restructuring and reorganization charges			1,152								14,193
Executive transition costs			1,148								27
Acquisition-related costs:
Amortization of acquired intangible assets			2,996								3,405
Transaction-related costs			(40	)							495
Stock-based compensation (1)			7,216								8,650
Non-GAAP income before income taxes			39,155								45,490
Non-GAAP income tax provision (3)			(11,159	)							(12,510	)
Non-GAAP net income		$	27,996			$	0.92			$	32,980			$	1.06

		Nine Months Ended								Nine Months Ended
		September 30, 2023								September 30, 2022
		Amounts				EPS (4)				Amounts				EPS (4)
GAAP net income		$	53,576			$	1.75			$	23,911			$	0.76
GAAP income tax provision (3)			21,931								8,603
GAAP income before income taxes			75,507								32,514
Restructuring and reorganization charges			8,421								46,304
Executive transition costs			1,148								1,302
Acquisition-related expenses:
Amortization of acquired intangible assets			9,203								11,017
Transaction-related costs			2,122								469
Stock-based compensation (1)			21,640								20,906
Loss on extinguishment of debt			-								7,456
Non-GAAP income before income taxes			118,041								119,968
Non-GAAP income tax provision (3)			(33,642	)							(32,991	)
Non-GAAP net income		$	84,399			$	2.76			$	86,977			$	2.76

(3)		For the third quarter and nine months ended September 30, 2023, the GAAP effective income tax rates were approximately 30% and 29%, respectively, and the non-GAAP effective income tax rates were 28.5% for both periods. 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.
(4)		The outstanding diluted shares for the third quarter and nine months ended September 30, 2023 were 30.3 million and 30.5, respectively, and for the third quarter and nine months ended September 30, 2022 were 31.2 million and 31.5 million, respectively.

Non-GAAP Adjusted EBITDA:

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

		Quarter Ended								Nine Months Ended
		September 30,								September 30,
		2023				2022				2023				2022
GAAP net income		$	18,694			$	12,481			$	53,576			$	23,911
GAAP income tax provision			7,989				6,239				21,931				8,603
Interest expense (5)			8,036				4,328				23,092				10,286
Loss on derivative liability upon debt conversion			-				-				-				7,456
Interest and investment income and other, net			(1,988	)			(3,071	)			531				(6,581	)
GAAP operating income			32,731				19,977				99,130				43,675
Restructuring and reorganization charges (1)			1,152				14,193				8,421				46,304
Executive transition costs			1,148				27				1,148				1,302
Acquisition-related expenses:
Amortization of acquired intangible assets (6)			2,996				3,405				9,203				11,017
Transaction-related costs			(40	)			495				2,122				469
Stock-based compensation (1)			7,216				8,650				21,640				20,906
Amortization of other intangible assets (6)			3,438				3,530				10,274				10,741
Amortization of customer contract costs (6)			4,997				3,829				14,390				14,150
Depreciation (1)			5,862				5,896				17,155				17,685
Non-GAAP adjusted EBITDA		$	59,500			$	60,002			$	183,483			$	166,249
Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2)			22.3	%			23.5	%			22.7	%			22.3	%

(5)		Interest expense includes amortization of deferred financing costs as provided in Note 6 below.
(6)		Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands):

		Quarter Ended								Nine Months Ended
		September 30,								September 30,
		2023				2022				2023				2022
Amortization of acquired intangible assets		$	2,996			$	3,405			$	9,203			$	11,017
Amortization of other intangible assets			3,438				3,530				10,274				10,741
Amortization of customer contract costs			4,997				3,829				14,390				14,150
Amortization of deferred financing costs			304				186				676				562
Total amortization		$	11,735			$	10,950			$	34,543			$	36,470

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,
		2023				2022				2023				2022
Cash flows from operating activities		$	24,582			$	22,838			$	52,365			$	9,573
Purchases of software, property and equipment			(6,512	)			(11,917	)			(22,940	)			(31,564	)
Non-GAAP free cash flow		$	18,070			$	10,921			$	29,425			$	(21,991	)

Non-GAAP Financial Measures – 2023 Financial Guidance

Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage:

The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of non-GAAP adjusted operating margin percentage, as included in CSG’s 2023 full year financial guidance, is as follows (in thousands, except percentages):

		2023 Guidance Range
		Low Range				High Range
Non- GAAP Operating Income
GAAP operating income		$	124,200			$	131,400
Restructuring and reorganization charges			8,400				8,400
Executive Transition Costs			1,300				1,300
Acquisition-related expenses:
Amortization of acquired intangible assets			12,200				12,200
Transaction-related costs			2,100				2,100
Stock-based compensation			30,700				30,700
Non-GAAP operating income		$	178,900			$	186,100
Non-GAAP Operating Margin Percentage
Revenue		$	1,150,000			$	1,175,000
Less: Transaction fees			(82,000	)			(87,000	)
Revenue less transaction fees		$	1,068,000			$	1,088,000
Non-GAAP adjusted operating margin percentage			16.75	%			17.1	%

Non-GAAP EPS:

The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2023 full year financial guidance is as follows (in thousands, except per share amounts):

		2023 Guidance Range
		Low Range								High Range
		Amounts				EPS (8)				Amounts				EPS (8)
GAAP net income		$	66,200			$	2.19			$	71,200			$	2.35
GAAP income tax provision (7)			27,200								29,400
GAAP income before income taxes			93,400								100,600
Restructuring and reorganization charges			8,400								8,400
Executive Transition Costs			1,300								1,300
Acquisition-related expenses:
Amortization of acquired intangible assets			12,200								12,200
Transaction-related costs			2,100								2,100
Stock-based compensation			30,700								30,700
Non-GAAP income before income taxes			148,100								155,300
Non-GAAP income tax provision (7)			(42,200	)							(43,400	)
Non-GAAP net income		$	105,900			$	3.50			$	111,900			$	3.70

(7)		For 2023, the estimated GAAP and non-GAAP effective income tax rates are expected to be approximately 29% and approximately 28% - 28.5%, respectively.
(8)		The weighted-average diluted shares outstanding are expected to be approximately 30 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 2023 full year financial guidance (in thousands, except percentages):

		2023 Guidance Range
		Low Range				High Range
GAAP net income		$	66,200			$	71,200
GAAP income tax provision (7)			27,200				29,400
Interest expense			30,900				30,900
Interest and investment income			(3,100	)			(3,100	)
Other, net			3,000				3,000
GAAP operating income			124,200				131,400
Restructuring and reorganization charges			8,400				8,400
Executive transition costs			1,300				1,300
Acquisition-related expenses:
Amortization of acquired intangible assets			12,200				12,200
Transaction-related costs			2,100				2,100
Stock-based compensation			30,700				30,700
Amortization of other intangible assets			13,500				13,500
Amortization of client contract costs			20,300				20,300
Depreciation			24,800				24,800
Non-GAAP adjusted EBITDA		$	237,500			$	244,700
Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2)			22.2	%			22.5	%

Non-GAAP Free Cash Flow:

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

		2023 Guidance Range
		Low Range				High Range
Cash flows from operating activities		$	102,000			$	148,000
Purchases of software, property and equipment			(22,000	)			(28,000	)
Non-GAAP free cash flow		$	80,000			$	120,000

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231101121909/en/

John Rea, Investor Relations

(210) 687-4409

E-mail: john.rea@csgi.com

Source: CSG

FAQ

What were CSG's financial results for Q3 2023?

CSG reported total revenue of $286.9 million and non-GAAP EPS of $0.92 for Q3 2023.

How much shares did CSG repurchase in Q3 2023?

CSG repurchased approximately 1,991,000 shares of its common stock for approximately $107 million in Q3 2023.

How much convertible debt did CSG raise in Q3 2023?

CSG raised $425 million in convertible notes (2023 Convertible Notes) due in 2028 in Q3 2023.

What was CSG's YTD organic revenue growth for 2023?

CSG achieved a 9.0% year-over-year organic revenue growth for the first nine months of 2023, the best in nearly two decades.

What is CSG's revised financial guidance for 2023?

CSG has revised its financial guidance for 2023, with no change to revenue and adjusted operating margin percentage. The EPS guidance is now $3.50 - $3.70, and the adjusted EBITDA guidance is $238 - $245 million. The free cash flow guidance remains at $80 - $120 million.