Achieved or Exceeded All 2023 Financial Guidance
Targets
2023 Organic Revenue Grew 7.3% YoY; CSG’s Best Annual Results
in Nearly Two Decades
Dividend Payout Increased 7% in 2024; Marks 11th Consecutive
Year of Increased Payout
Returned Over $150 Million to Shareholders in 2023 including
$117 Million of Share Repurchases
Q4 Operating Cash Flow of $80 Million with Record Quarterly
Non-GAAP Free Cash Flow of $74 Million
CSG (NASDAQ: CSGS) today reported results for the quarter and
year ended December 31, 2023.
Financial Results:
Fourth quarter 2023 financial results:
- Total revenue was $297.3 million.
- GAAP operating income was $24.7 million, or an operating
margin of 8.3%, and non-GAAP operating income was $44.1
million, or a non-GAAP adjusted operating margin of
16.1%.
- GAAP earnings per diluted share (EPS) was $0.44 and
non-GAAP EPS was $0.92.
- Cash flows from operations were $79.5 million, with
non-GAAP free cash flow of $74.5 million.
Full year 2023 financial results:
- Total revenue was $1.17 billion.
- GAAP operating income was $123.9 million, or an
operating margin of 10.6%, and non-GAAP operating income was
$185.7 million, or a non-GAAP adjusted operating margin of
17.2%.
- GAAP EPS was $2.20 and non-GAAP EPS was
$3.69.
- Cash flows from operations were $131.9 million,
with non-GAAP free cash flow of $103.9 million.
Shareholder Returns:
- In November 2023, CSG declared its quarterly cash dividend of
$0.28 per share of common stock, or a total of approximately
$8 million, to shareholders, bringing total 2023 dividends
to approximately $34 million.
- In January 2024, CSG’s Board of Directors approved a 7%
increase in CSG’s cash dividend, with quarterly payments of
$0.30 per share of common stock to be paid in March
2024.
- During the fourth quarter and full year 2023, CSG repurchased
under its stock repurchase program, approximately 196,000
shares of its common stock for approximately $10 million
and approximately 2,188,000 shares of its common stock for
approximately $117 million, respectively.
“Team CSG had a record-setting 2023 as we delivered excellent
financial results across the board highlighted by 7.3%
year-over-year organic revenue growth, our strongest annual result
in nearly two decades,” said Brian Shepherd, President and Chief
Executive Officer of CSG. “Additionally, we delivered strong
profitability and cash flow generation as our non-GAAP adjusted
operating margin improved from 16.6% in 2022 to 17.2% in 2023,
while generating $104 million in non-GAAP free cash flow. Plus, we
continue to return capital to shareholders in the form of buybacks
and dividends, having delivered over $150 million in shareholder
remuneration in 2023. On this note, we are pleased to announce our
11th consecutive year of increasing dividend payout in 2024.
Looking forward, we anticipate mid-single-digit organic revenue
growth, resulting in revenue between $1.2 and $1.24 billion in 2024
with non-GAAP adjusted operating margins in the range of 17.0% to
17.4%.”
Financial Overview
(unaudited)
(in thousands, except per share amounts and percentages):
Quarter Ended December
31,
Year Ended December
31,
Percent
Percent
2023
2022
Changed
2023
2022
Changed
GAAP Results:
Revenue
$
297,324
$
289,876
2.6
%
$
1,169,258
$
1,089,752
7.3
%
Operating Income
24,747
35,072
(29.4
%)
123,877
78,747
57.3
%
Operating Margin Percentage
8.3
%
12.1
%
10.6
%
7.2
%
EPS
$
0.44
$
0.66
(33.3
%)
$
2.20
$
1.41
56.0
%
Non-GAAP Results:
Operating Income
$
44,063
$
45,157
(2.4
%)
$
185,727
$
168,830
10.0
%
Adjusted Operating Margin Percentage
16.1
%
16.8
%
17.2
%
16.6
%
EPS
$
0.92
$
0.84
9.5
%
$
3.69
$
3.61
2.2
%
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
fourth quarter of 2023 was $297.3 million, a 2.6% increase when
compared to revenue of $289.9 million for the fourth quarter of
2022. Total revenue for the full year 2023 was $1,169.3 million, a
7.3% increase when compared to revenue of $1,089.8 million for the
full year 2022. The increases in revenue can be mainly attributed
to the continued growth of CSG’s revenue management solutions, to
include the conversion of customer accounts on CSG solutions,
growth in digital solutions, and increased payments volumes.
GAAP operating income for the fourth quarter of 2023 was $24.7
million, or 8.3% of total revenue, compared to $35.1 million, or
12.1% of total revenue, for the fourth quarter of 2022. GAAP
operating income for the full year 2023 was $123.9 million, or
10.6% of total revenue, compared to $78.7 million, or 7.2% of total
revenue, for the full year 2022. These changes in operating income
can be mainly attributed to the $7.9 million quarterly increase in
restructuring and reorganization charges, and the $30.0 million
full year decrease in restructuring and reorganization charges.
GAAP EPS for the fourth quarter of 2023 was $0.44, as compared
to $0.66 for the fourth quarter of 2022. GAAP EPS for the full year
2023 was $2.20, compared to $1.41 for the full year 2022. The
changes in GAAP EPS are mainly due to fluctuations in operating
income, discussed above, with the full year increase in GAAP EPS
partially offset by higher interest expense.
Non-GAAP Results: Non-GAAP
operating income for the fourth quarter of 2023 was $44.1 million,
or a non-GAAP adjusted operating margin of 16.1%, compared to $45.2
million, or a non-GAAP adjusted operating margin of 16.8% for the
fourth quarter of 2022. Non-GAAP operating income for the full year
2023 was $185.7 million, or a non-GAAP adjusted operating margin of
17.2%, compared to $168.8 million, or a non-GAAP adjusted operating
margin of 16.6% for the full year 2022.
Non-GAAP EPS for the fourth quarter of 2023 was $0.92 compared
to $0.84 for the fourth quarter of 2022. Non-GAAP EPS for the full
year 2023 was $3.69 compared to $3.61 for the full year 2022.
Balance Sheet and Cash
Flows
Cash, cash equivalents, and short-term investments as of
December 31, 2023 were $186.3 million compared to $146.7 million as
of September 30, 2023 and $150.4 million as of December 31, 2022.
CSG generated net cash flows from operations for the fourth
quarters ended December 31, 2023 and 2022 of $79.5 million and
$54.0 million, respectively, and had non-GAAP free cash flow of
$74.5 million and $48.6 million, respectively. For the year ended
December 31, 2023 and 2022, CSG generated net cash flows from
operations of $131.9 million and $63.6 million, respectively, and
had non-GAAP free cash flow of $103.9 million and $26.6 million,
respectively.
Summary of Financial
Guidance
CSG’s financial guidance for the full year 2024 is as
follows:
GAAP Measures:
Revenue
$1,200 - $1,240 million
Non-GAAP Measures:
Adjusted Operating Margin
Percentage
17.0% - 17.4%
EPS
$3.85 - $4.15
Adjusted EBITDA
$245 - $255 million
Free Cash Flow
$95 - $135 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, February 7, 2024
at 5:00 p.m. ET, to discuss CSG’s fourth quarter and full year 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)
December 31,
2023
December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents
$
186,264
$
150,365
Short-term investments
-
71
Total cash, cash equivalents, and
short-term investments
186,264
150,436
Settlement and merchant reserve assets
274,699
238,653
Trade accounts receivable:
Billed, net of allowance of $5,432 and
$5,528
267,680
274,189
Unbilled
82,163
52,830
Income taxes receivable
1,345
1,270
Other current assets
50,075
48,577
Total current assets
862,226
765,955
Non-current assets:
Property and equipment, net of
depreciation of $121,816 and $105,466
65,545
71,787
Operating lease right-of-use assets
34,283
49,687
Software, net of amortization of $157,601
and $150,337
14,224
22,774
Goodwill
308,596
304,036
Acquired customer contracts, net of
amortization of $126,469 and $120,080
35,879
45,417
Customer contract costs, net of
amortization of $42,094 and $30,601
54,421
54,735
Deferred income taxes
57,855
26,206
Other assets
10,017
7,956
Total non-current assets
580,820
582,598
Total assets
$
1,443,046
$
1,348,553
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
$
7,500
$
37,500
Operating lease liabilities
15,946
21,012
Customer deposits
41,035
40,472
Trade accounts payable
46,406
47,720
Accrued employee compensation
84,380
68,321
Settlement and merchant reserve
liabilities
273,817
237,810
Deferred revenue
54,199
46,033
Income taxes payable
4,104
5,455
Other current liabilities
33,449
22,886
Total current liabilities
560,836
527,209
Non-current liabilities:
Long-term debt, net of unamortized
discounts of $15,628 and $2,656
534,997
375,469
Operating lease liabilities
34,360
53,207
Deferred revenue
23,447
21,991
Income taxes payable
3,041
3,410
Deferred income taxes
123
117
Other non-current liabilities
12,916
11,901
Total non-current liabilities
608,884
466,095
Total liabilities
1,169,720
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; 29,541 and 31,269 shares outstanding
713
708
Additional paid-in capital
490,947
495,189
Treasury stock, at cost; 40,398 and 38,210
shares
(1,136,055
)
(1,018,034
)
Accumulated other comprehensive income
(loss):
Unrealized gain on short-term investments,
net of tax
1
1
Cumulative foreign currency translation
adjustments
(50,414
)
(58,830
)
Accumulated earnings
968,134
936,215
Total stockholders' equity
273,326
355,249
Total liabilities and stockholders'
equity
$
1,443,046
$
1,348,553
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per
share amounts)
Quarter Ended
Year Ended
December 31,
2023
December 31,
2022
December 31,
2023
December 31,
2022
Revenue
$
297,324
$
289,876
$
1,169,258
$
1,089,752
Cost of revenue (exclusive of
depreciation, shown separately below)
156,145
150,154
615,042
565,168
Other operating expenses:
Research and development
35,800
34,548
143,201
137,913
Selling, general and administrative
66,683
64,185
247,613
238,018
Depreciation
6,034
5,913
23,189
23,598
Restructuring and reorganization
charges
7,915
4
16,336
46,308
Total operating expenses
272,577
254,804
1,045,381
1,011,005
Operating income
24,747
35,072
123,877
78,747
Other income (expense):
Interest expense
(8,084
)
(6,146
)
(31,176
)
(16,432
)
Interest and investment income, net
1,820
340
4,336
877
Loss on derivative liability upon debt
conversion
-
-
-
(7,456
)
Other, net
(1,639
)
(999
)
(4,686
)
5,045
Total other
(7,903
)
(6,805
)
(31,526
)
(17,966
)
Income before income taxes
16,844
28,267
92,351
60,781
Income tax provision
(4,174
)
(8,118
)
(26,105
)
(16,721
)
Net income
$
12,670
$
20,149
$
66,246
$
44,060
Weighted-average shares outstanding:
Basic
28,607
30,455
29,938
31,028
Diluted
28,842
30,732
30,115
31,298
Earnings per common share:
Basic
$
0.44
$
0.66
$
2.21
$
1.42
Diluted
0.44
0.66
2.20
1.41
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Year Ended
December 31,
2023
December 31,
2022
Cash flows from operating activities:
Net income
$
66,246
$
44,060
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation
23,585
27,967
Amortization
47,667
48,984
Asset impairment
2,061
31,761
Gain on lease modifications
(4,349
)
-
Loss on short-term investments and
other
-
18
Loss on derivative liability upon debt
conversion
-
7,456
Unrealized foreign currency transactions
(gain)/loss, net
225
(103
)
Deferred income taxes
(23,560
)
(27,627
)
Stock-based compensation
28,990
27,243
Subtotal
140,865
159,759
Changes in operating assets and
liabilities:
Trade accounts receivable, net
(22,401
)
(51,005
)
Other current and non-current assets and
liabilities
(6,566
)
(12,833
)
Income taxes payable/receivable
(1,849
)
9,336
Trade accounts payable and accrued
liabilities
12,541
(36,971
)
Deferred revenue
9,306
(4,689
)
Net cash provided by operating
activities
131,896
63,597
Cash flows from investing activities:
Purchases of software, property and
equipment
(27,977
)
(36,991
)
Proceeds from sale/maturity of short-term
investments
71
27,953
Net cash used in investing activities
(27,906
)
(9,038
)
Cash flows from financing activities:
Proceeds from issuance of common stock
3,284
2,969
Payment of cash dividends
(33,930
)
(33,475
)
Repurchase of common stock
(127,065
)
(96,720
)
Deferred acquisition payments
(3,220
)
(2,314
)
Proceeds from long-term debt
470,000
290,000
Payments on long-term debt
(327,500
)
(264,801
)
Purchase of capped call transactions
related to convertible notes
(34,298
)
-
Payments of deferred financing costs
(14,539
)
-
Settlement and merchant reserve
activity
35,963
52,656
Net cash used in financing activities
(31,305
)
(51,685
)
Effect of exchange rate fluctuations on
cash, cash equivalents, and restricted cash
2,173
(5,758
)
Net increase (decrease) in cash, cash
equivalents, and restricted cash
74,858
(2,884
)
Cash, cash equivalents, and restricted
cash, beginning of period
389,018
391,902
Cash, cash equivalents, and restricted
cash, end of period
$
463,876
$
389,018
Supplemental disclosures of cash flow
information:
Cash paid during the period for-
Interest
$
24,730
$
18,314
Income taxes
51,675
34,671
Reconciliation of cash, cash equivalents,
and restricted cash:
Cash and cash equivalents
$
186,264
$
150,365
Settlement and merchant reserve assets
274,699
238,653
Restricted cash included in current and
non-current assets
2,913
-
Total cash, cash equivalents, and
restricted cash
$
463,876
$
389,018
EXHIBIT 1
CSG SYSTEMS INTERNATIONAL,
INC.
SUPPLEMENTAL REVENUE
ANALYSIS
Revenue by
Significant Customers: 10% or more of Revenue
Quarter Ended
Quarter Ended
Quarter Ended
December 31, 2023
September 30, 2023
December 31, 2022
Amount
% of
Revenue
Amount
% of
Revenue
Amount
% of
Revenue
Charter
$
60,128
20
%
$
59,432
21
%
$
58,006
20
%
Comcast
54,651
18
%
53,653
19
%
55,383
19
%
Year Ended
Year Ended
December 31, 2023
December 31, 2022
Amount
% of
Revenue
Amount
% of
Revenue
Charter
$
241,267
21
%
$
221,222
20
%
Comcast
215,476
18
%
214,359
20
%
Revenue by
Vertical
Quarter Ended
Quarter Ended
Quarter Ended
December 31,
September 30,
December 31,
2023
2023
2022
Broadband/Cable/Satellite
51
%
53
%
53
%
Telecommunications
21
%
20
%
20
%
All other
28
%
27
%
27
%
Total revenue
100
%
100
%
100
%
Year Ended
Year Ended
December 31,
December 31,
2023
2022
Broadband/Cable/Satellite
52
%
54
%
Telecommunications
20
%
20
%
All other
28
%
26
%
Total revenue
100
%
100
%
Revenue by
Geography
Quarter Ended
Quarter Ended
Quarter Ended
December 31,
September 30,
December 31,
2023
2023
2022
Americas
85
%
86
%
86
%
Europe, Middle East and Africa
10
%
9
%
9
%
Asia Pacific
5
%
5
%
5
%
Total revenue
100
%
100
%
100
%
Year Ended
Year Ended
December 31,
December 31,
2023
2022
Americas
86
%
85
%
Europe, Middle East and Africa
10
%
11
%
Asia Pacific
4
%
4
%
Total revenue
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 non-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
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Non-GAAP
Operating Income
GAAP operating income
$
24,747
$
35,072
$
123,877
$
78,747
Restructuring and reorganization charges
(1)
7,915
4
16,336
46,308
Executive transition costs
606
-
1,754
1,302
Acquisition-related expenses:
Amortization of acquired intangible
assets
2,982
3,338
12,185
14,355
Transaction-related costs
(27
)
(296
)
2,095
173
Stock-based compensation (1)
7,840
7,039
29,480
27,945
Non-GAAP operating income
$
44,063
$
45,157
$
185,727
$
168,830
Non-GAAP Adjusted
Operating Margin Percentage
Revenue
$
297,324
$
289,876
$
1,169,258
$
1,089,752
Less: Transaction fees (2)
(23,967
)
(20,751
)
(87,430
)
(75,679
)
Revenue less transaction fees
$
273,357
$
269,125
$
1,081,828
$
1,014,073
Non-GAAP adjusted operating margin
percentage
16.1
%
16.8
%
17.2
%
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
December 31, 2023
December 31, 2022
Amounts
EPS (4)
Amounts
EPS (4)
GAAP net income
$
12,670
$
0.44
$
20,149
$
0.66
GAAP income tax provision (3)
4,174
8,118
GAAP income before income taxes
16,844
28,267
Restructuring and reorganization charges
(1)
7,915
4
Executive transition costs
606
-
Acquisition-related costs:
Amortization of acquired intangible
assets
2,982
3,338
Transaction-related costs
(27
)
(296
)
Stock-based compensation (1)
7,840
7,039
Non-GAAP income before income taxes
36,160
38,352
Non-GAAP income tax provision (3)
(9,535
)
(12,435
)
Non-GAAP net income
$
26,625
$
0.92
$
25,917
$
0.84
Year Ended
Year Ended
December 31, 2023
December 31, 2022
Amounts
EPS (4)
Amounts
EPS (4)
GAAP net income
$
66,246
$
2.20
$
44,060
$
1.41
GAAP income tax provision (3)
26,105
16,721
GAAP income before income taxes
92,351
60,781
Restructuring and reorganization charges
(1)
16,336
46,308
Executive transition costs
1,754
1,302
Acquisition-related expenses:
Amortization of acquired intangible
assets
12,185
14,355
Transaction-related costs
2,095
173
Stock-based compensation (1)
29,480
27,945
Loss on extinguishment of debt
-
7,456
Non-GAAP income before income taxes
154,201
158,320
Non-GAAP income tax provision (3)
(43,176
)
(45,427
)
Non-GAAP net income
$
111,025
$
3.69
$
112,893
$
3.61
(3)
For the fourth quarter and year ended
December 31, 2023 the GAAP effective income tax rates were
approximately 25% and 28%, respectively, and the non-GAAP effective
income tax rates were approximately 26% and 28%, respectively. For
the fourth quarter and year ended December 31, 2022 the GAAP
effective income tax rates were approximately 29% and 28%,
respectively, and the non-GAAP effective income tax rates were
approximately 32% and 29%, respectively.
(4)
The outstanding diluted shares for the
fourth quarter and year ended December 31, 2023 were 28.8 million
and 30.1 million, respectively, and for the fourth quarter and year
ended December 31, 2022 were 30.7 million and 31.3 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
Year Ended
December 31,
December 31,
2023
2022
2023
2022
GAAP net income
$
12,670
$
20,149
$
66,246
$
44,060
GAAP income tax provision
4,174
8,118
26,105
16,721
Interest expense (5)
8,084
6,146
31,176
16,432
Loss on derivative liability upon debt
conversion
-
-
-
7,456
Interest and investment income and other,
net
(181
)
659
350
(5,922
)
GAAP operating income
24,747
35,072
123,877
78,747
Restructuring and reorganization charges
(1)
7,915
4
16,336
46,308
Executive transition costs
606
-
1,754
1,302
Acquisition-related expenses:
Amortization of acquired intangible assets
(6)
2,982
3,338
12,185
14,355
Transaction-related costs
(27
)
(296
)
2,095
173
Stock-based compensation (1)
7,840
7,039
29,480
27,945
Amortization of other intangible assets
(6)
3,350
3,399
13,624
14,140
Amortization of customer contract costs
(6)
5,901
5,588
20,291
19,738
Depreciation (1)
6,034
5,913
23,189
23,598
Non-GAAP adjusted EBITDA
$
59,348
$
60,057
$
242,831
$
226,306
Non-GAAP adjusted EBITDA as a percentage
of revenue less transaction fees (2)
21.7
%
22.3
%
22.4
%
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
Year Ended
December 31,
December 31,
2023
2022
2023
2022
Amortization of acquired intangible
assets
$
2,982
$
3,338
$
12,185
$
14,355
Amortization of other intangible
assets
3,350
3,399
13,624
14,140
Amortization of customer contract
costs
5,901
5,588
20,291
19,738
Amortization of deferred financing
costs
891
189
1,567
751
Total amortization
$
13,124
$
12,514
$
47,667
$
48,984
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
Year Ended
December 31,
December 31,
2023
2022
2023
2022
Cash flows from operating activities
$
79,531
$
54,024
$
131,896
$
63,597
Purchases of software, property and
equipment
(5,037
)
(5,427
)
(27,977
)
(36,991
)
Non-GAAP free cash flow
$
74,494
$
48,597
$
103,919
$
26,606
Non-GAAP Financial Measures – 2024
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 2024 full year financial
guidance, is as follows (in thousands, except percentages):
2024 Guidance Range
Low Range
High Range
Non-GAAP
Operating Income
GAAP operating income
$
145,100
$
155,100
Executive transition costs
500
500
Acquisition-related expenses:
Amortization of acquired intangible
assets
11,100
11,100
Stock-based compensation
31,000
31,000
Non-GAAP operating income
$
187,700
$
197,700
Non-GAAP
Operating Margin Percentage
Revenue
$
1,200,000
$
1,240,000
Less: Transaction fees
(98,000
)
(103,000
)
Revenue less transaction fees
$
1,102,000
$
1,137,000
Non-GAAP adjusted operating margin
percentage
17.0
%
17.4
%
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in
CSG’s 2024 full year financial guidance is as follows (in
thousands, except per share amounts):
2024 Guidance Range
Low Range
High Range
Amounts
EPS (8)
Amounts
EPS (8)
GAAP net income
$
84,000
$
2.86
$
91,200
$
3.13
GAAP income tax provision (7)
35,100
37,900
GAAP income before income taxes
119,100
129,100
Executive transition costs
500
500
Acquisition-related expenses:
Amortization of acquired intangible
assets
11,100
11,100
Stock-based compensation
31,000
31,000
Non-GAAP income before income taxes
161,700
171,700
Non-GAAP income tax provision (7)
(47,700
)
(50,500
)
Non-GAAP net income
$
114,000
$
3.85
$
121,200
$
4.15
(7)
For 2024, the estimated effective income
tax rate for GAAP and non-GAAP purposes is expected to be
approximately 29%.
(8)
The weighted-average diluted shares
outstanding are expected to be approximately 29 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 2024 full year financial
guidance (in thousands, except percentages):
2024 Guidance Range
Low Range
High Range
GAAP net income
$
84,000
$
91,200
GAAP income tax provision (7)
35,100
37,900
Interest expense
30,000
30,000
Interest and investment income
(4,000
)
(4,000
)
GAAP operating income
145,100
155,100
Executive transition costs
500
500
Acquisition-related expenses:
Amortization of acquired intangible
assets
11,100
11,100
Stock-based compensation
31,000
31,000
Amortization of other intangible
assets
5,200
5,200
Amortization of client contract costs
22,100
22,100
Depreciation
30,000
30,000
Non-GAAP adjusted EBITDA
$
245,000
$
255,000
Non-GAAP adjusted EBITDA as a percentage
of revenue less transaction fees (2)
22.2
%
22.4
%
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):
2024 Guidance Range
Low Range
High Range
Cash flows from operating activities
$
120,000
$
170,000
Purchases of software, property and
equipment
(25,000
)
(35,000
)
Non-GAAP free cash flow
$
95,000
$
135,000
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240207762697/en/
John Rea, Investor Relations (210) 687-4409 E-mail:
john.rea@csgi.com
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